Question
The recession has caused car owners to defer a new car purchase and keep their existing car. Thus, analysts do not expect automotive stocks to
The recession has caused car owners to defer a new car purchase and keep their existing car. Thus, analysts do not expect automotive stocks to rise for the next few months. You plan to profit from this by taking a short position in a call option on BorgWarner Inc., the car parts manufacturer. Shares of BorgWarner are currently trading for $80. You write a call option that expires in three months and has a strike price of $85. The option is trading for $5. At maturity, what is the profit of this call writing strategy if BorgWarner's stock price is $100? Assume that there is one share per contract.
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