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Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock at a specified price within
Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock at a specified price within a specific time period. A call buyer profits when the underlying stock increases in price. Assume s single call option gives you the right to buy 100 shares of Apple stock at $100 up until the expiry date in three months. To put the problem simple, assume that:
- With probablity 50%, the price of the Apple stock goes up to $160: In this case, you use the option to buy 100 shares of Apple stock at $100 each.
- With probability 50%, the price of the Apple stock goes down to $80: In this case, you do not use the option.
- Calculate the value of this call option. Output the sentence indicating the value of the option. For example, if the value of the option is $1000, print "The premium of the call option is $1000 dollars."
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