Question
Suppose shortly after you purchased an XYZ December 60 call for $3 the price of the stock decreased to $56 per share on speculation of
Suppose shortly after you purchased an XYZ December 60 call for $3 the price of the stock decreased to $56 per share on speculation of a future announcement of low quarterly earnings for the XYZ Company, which you believe is warranted. Explain how you could profit at expiration by changing your potentially unprofitable call position to a potentially profitable spread position based on the stock decreasing. Assume there is an XYZ September 50 call available at $8 and evaluate the spread at expiration stock prices of $45, $50, $55, $60, $65, and $70.
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