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3. Pfizer stock (PFE) is trading at $17.40 today. Consider a European call option on 1 share of PFE with strike K = 18 and
3. Pfizer stock (PFE) is trading at $17.40 today. Consider a European call option on 1 share of PFE with strike K = 18 and expiration in T = .25 years. The call is selling today for $0.44. Assume r = 0.01. (a) You buy one of these calls. In 3 months at expiration, PFE is trading at $19. What is the call worth at expiration? What is the only course of action at expiration (assuming you want to maximize your profit)? What is your profit or loss? (b) Repeat the problem if instead PFE trades at $17 at expiration. What about if it trades at $8 at expiration? (c) Now instead suppose that today you write one of the calls. What will happen if PFE is trading at $19 at expiration and what course of action will you have to take? What is your profit or loss? Repeat the problem if PFE trades at $17 at expiration
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