Question
5) You are bullish on Amazons stock (AMZN) which is currently selling for $1596.50. You have decided to buy a 6-month call option with a
5) You are bullish on Amazons stock (AMZN) which is currently selling for $1596.50. You have decided to buy a 6-month call option with a strike price of $1,625. It costs $50.60 per share to buy the option. Assume the 6-month risk-free rate is 1% per annum with continuous compounding. a. Draw the profit and payoff function for the long call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike) b. Note each contract is for 100 call options. Calculate what the payoff and profit at expiration is if the spot price is _______. i. $1,550 ii. $1,600 iii. $1,675.60 c. Draw the profit and payoff function for the short call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike)
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