Question
A stock is currently trading for $52.33. An investor buys a call option at a $55 strike price, which costs a premium of 2.04$. The
A stock is currently trading for $52.33. An investor buys a call option at a $55 strike price, which costs a premium of 2.04$. The same investor simultaneously sells a call option with a strike of $62, which has a premium of 0.88$. Assume that one call option is for one hundred shares of underlying stock.
Answer the following questions, making sure that your answers are for the entire contract: a) What kind of strategy is this investor building?
b) What is the net outlay of this strategy?
c) Draw the profit diagram of this strategy. Ensure the x-axis of possible spot prices ranges from $50 to $65.
d) What is the breakeven point of this strategy?
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