Question
An investor has $1000 to invest. Being bullish, he has the choice between buying 5 shares of a stock for $200/share or buying 50 ATM
An investor has $1000 to invest. Being bullish, he has the choice between buying 5 shares of a stock for $200/share or buying 50 ATM call options for c=$20.
If the investor's bullish expectations come true and the stock's price rises 30%, the investor earns $300 profit, a return of 30%, on the stock investment. Had he chosen buying the call options, his profit would be $,-------- a return of ------%.
If the investor's bullish expectations do not come true and the stock's price decreases by 30%, the investor earns $ -300 profit, or -30% return, on the stock investment. Had he chosen buying the call options, his profit would be $-------, a return of ---------%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started