Question
The current price of a stock is $94, and three-month European call options with a strike price of $95 currently sell for $4.70. An investor
The current price of a stock is $94, and three-month European call options
with a strike price of $95 currently sell for $4.70. 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 $9,400. What advice would you give? How high does the
stock price have to rise for the option strategy to be more profitable?
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Comparative Public Budgeting
Authors: George M Guess
2nd Edition
1316648109, 978-1316648100
