Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Amazon.com, Inc. has a current stock price of $3500.00, and December 18 American call options with a strike price of $3490 currently sell for $350.00

Amazon.com, Inc. has a current stock price of $3500.00, and December 18 American call options with a strike price of $3490 currently sell for $350.00 (per share). A major investor who feels that the price of the stock will increase is trying to decide between buying 1000 shares and going long 10,000 call options (which is 100 option contracts, each on 100 shares). Both strategies involve an investment of $3.5M. Ignoring the early exercise option, under what circumstances will each approach be better at December 18? What is the break-even stock price on December 18 between the strategies?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

Step: 3

blur-text-image

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

Introduction To Finance Markets, Investments, And Financial Management

Authors: Ronald W. Melicher, Edgar A. Norton

17th Edition

1119561175, 978-1119561170

More Books

Students also viewed these Finance questions