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The spot price for Google stock is $578 on June 6. A trader has two alternatives: buy 100 shares, or buy 100 call options on
The spot price for Google stock is $578 on June 6. A trader has two alternatives: buy 100 shares, or buy 100 call options on Google for $38 each with a strike price of $575 and maturity date of September. For each alternative: a) For each alternative, what is the upfront cost? b) For each alternative, what is the total gain/loss if the stock price at maturity is $650 ? c) For each alternative, what is the total gain/loss if the stock price is $500 at maturity? d) When does the trader prefer buying the shares to buying the option? Show profits for both cases (plot on the same graph) as a function of the price. The spot price for Google stock is $578 on June 6. A trader has two alternatives: buy 100 shares, or buy 100 call options on Google for $38 each with a strike price of $575 and maturity date of September. For each alternative: a) For each alternative, what is the upfront cost? b) For each alternative, what is the total gain/loss if the stock price at maturity is $650 ? c) For each alternative, what is the total gain/loss if the stock price is $500 at maturity? d) When does the trader prefer buying the shares to buying the option? Show profits for both cases (plot on the same graph) as a function of the price
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