Question
You are analyzing a call option today, for the option premium NOK 5. One of these call options gives you the right to buy 100
You are analyzing a call option today, for the option premium NOK 5. One of these call options gives you the right to buy 100 units of the underlying share in 6 months for NOK 80 per share.
a. Show the option's payoff diagram (= the cash flow on the expiration date / settlement date) a) to you who buy the option, and b) to you who sell the option, both graphically and tabularly.
b. Show the profit chart, ie the payoff chart including the t0 option premium that you either pay or receive, to you a) as the buyer of the option, and b) as the seller of the option. Assume that the risk-free interest rate for 6 months is 0%.
c. Use "A" as the symbol for the share price, "T" for the expiration date / settlement date, and "I" for the option's exercise price. Describe the general payoff profile (= cash flow on T without option premium) using these symbols. Comment on your results.
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