Chegg, Inc. (ticker: CHGG) is a publicly traded American education technology company based in Santa Clara, California. Suppose that you want to bet on a future price increase in Cheggs stock and consider purchasing a CHGG call option with the strike price of $85 and expiration date in exactly one year.

1. Under what circumstances will you make a gain? Explain. (5pts)

2. Using information provided in the appendix (next page) as well as stock price data provided on the CHGG sheet, calculate the value of CHGG call option. (30 pts)

3. Assume that you are willing to invest $4,000 in CHGG. Based on your finding in your previous question, briefly outline the advantages and disadvantages of each of the following strategy:

a. Buy shares of CHGG (7.5 pts)

b. Buy call options of CHGG (7.5 pts)