Question
Courtney thinks that Apples stock is cheap at $120 a share. She can think of three trading strategies. She can buy the AAPL stock at
Courtney thinks that Apples stock is cheap at $120 a share. She can think of three trading strategies. She can buy the AAPL stock at $120. She can also buy April 23 call option contracts with a strike of $120 for $4.90 a share or $490 per contract. Alternatively, she can write put contracts with a strike price of $120 and an expiration date on April 23. The put price is $4.82. There is a margin requirement of $4.82+24=$28.82 per put or $2,882 per contract. She is given an initial fund of $10,000. She expect that the stock price can be either $132 or $108 on April 23. Assume that she will try to maximize her gains. However, no fractional shares or contracts are allowed. Please show the initial costs for each of the strategy. Use the following table to show how much she gain or lose using the strategies.
Stock price at $132 | Stock price at $108 | |
Buy Stock | ||
Buy Call | ||
Write Put (bonus, not required) |
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