Question
The current price of a stock is $86, and three-month call options with a strike price of $87 currently sell for $4.30. An investor who
The current price of a stock is $86, and three-month call options with a strike price of $87 currently sell for $4.30. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (20 contracts). Both strategies involve an investment of $8,600. What advice would you give? How high does the stock price have to rise for the option strategy to be more profitable?
Step by Step Solution
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There are 3 Steps involved in it
Step: 1
To determine the advice and the breakeven point for the option strategy lets analyze both scenarios ...
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
