Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alphabet's earnings announcement for the first quarter of 2021 is scheduled for tomorrow. The consensus among analysts is that there is a 60% chance that

Alphabet's earnings announcement for the first quarter of 2021 is scheduled for tomorrow. The consensus among analysts is that there is a 60% chance that Alphabet will announce earnings that exceed expectations. If this happens, the stock price will rise to $2,650. There is a 20% chance that the earnings will be disappointing which causes the stock price to drop to $2,170. Also, there's a 20% chance that the earnings will be exactly as much as analysts expected. In this case, the stock price will not change. Alphabet's current stock price is $2,300. As a speculating investor, I have decided to buy 200 call options on Alphabet's stock with the strike price of $2,250 that expires on the day of the announcement. 


Ignoring time value of money, what is the value of the options that I have right now?

Step by Step Solution

3.44 Rating (157 Votes )

There are 3 Steps involved in it

Step: 1

To calculate the value of the call options you currently hold you can use the BlackScholes option pr... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Ethical Obligations And Decision Making In Accounting Text And Cases

Authors: Steven Mintz

6th Edition

1264135947, 9781264135943

More Books

Students also viewed these Finance questions