GameStop began the year with nine analysts covering the stock. Now only three remain with ratings...

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GameStop began the year with nine analysts covering the stock. Now only three remain with ratings after an analyst suspended his target, pointing his finger at social media and other nonfundamental factors that are moving the stock. Baird analyst Colin Sebastian discussed the reasoning behind his decision in a note on Monday. He told clients that he is putting his Neutral rating and $25 price target on hold until management details its new business strategy so analysts can better forecast free cash-flow generation and assess intrinsic value. Sebastian wrote that he recognized that GameStop (ticker: GME) is shifting rapidly from in-store videogame sales to e-commerce, but that he believes share price volatility is tied more closely to non-fundamental trading, social media influences and other factors that make it difficult, at least in the near term, to make a reasonable stock rating recommendation to institutional investors." 1. Generally-speaking, are puts on the stock in the quotes provided more or less expensive than calls? How can you tell? What is the rationale? 2. Suppose you have no idea where the stock will be trading in November. However, you have a hunch that the current price is not correct. What option strategy would you execute? Be sure to illustrate the payoffs as-suming you are correct.1 3. Suppose you have no idea where the stock will be trading in November. However, you have a hunch that the current price expresses the true val-uation for the stock. What option strategy would you execute? Be sure to illustrate the payoffs assuming you are correct. 4. Demonstrate that financial arbitrage involving futures and the synthetic futures (made up of calls and puts) is not possible. GameStop began the year with nine analysts covering the stock. Now only three remain with ratings after an analyst suspended his target, pointing his finger at social media and other nonfundamental factors that are moving the stock. Baird analyst Colin Sebastian discussed the reasoning behind his decision in a note on Monday. He told clients that he is putting his Neutral rating and $25 price target on hold until management details its new business strategy so analysts can better forecast free cash-flow generation and assess intrinsic value. Sebastian wrote that he recognized that GameStop (ticker: GME) is shifting rapidly from in-store videogame sales to e-commerce, but that he believes share price volatility is tied more closely to non-fundamental trading, social media influences and other factors that make it difficult, at least in the near term, to make a reasonable stock rating recommendation to institutional investors." 1. Generally-speaking, are puts on the stock in the quotes provided more or less expensive than calls? How can you tell? What is the rationale? 2. Suppose you have no idea where the stock will be trading in November. However, you have a hunch that the current price is not correct. What option strategy would you execute? Be sure to illustrate the payoffs as-suming you are correct.1 3. Suppose you have no idea where the stock will be trading in November. However, you have a hunch that the current price expresses the true val-uation for the stock. What option strategy would you execute? Be sure to illustrate the payoffs assuming you are correct. 4. Demonstrate that financial arbitrage involving futures and the synthetic futures (made up of calls and puts) is not possible.

Answer rating: 100% (QA)

Based on the scenario provided with GameStop and the market conditions described lets address your questions 1 Puts vs Calls Pricing General Assessment without specific data Without specific option pr... View the full answer