Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have a bullish view on the US stock market for the three days. You have $ 1 0 0 to invest. You decide to

You have a bullish view on the US stock market for the three days. You have $100 to invest.
You decide to buy call options based on an ETF that tracks the S&P 500 Index. The option is American and the strike price of the option is $102. That is, at any time, you can exercise the option and buy this ETF from the option seller at $102. The premium of the call option is $2 per share, i.e., if you spend $2, you buy 1 share of the option contract which allows you to buy 1 share of the ETF should you decide to do it. You decide to go all in and buy this call option as much as possible.
The S&P 500 Index earns a return of 3.53%,-4.68%, and 7.27% for the next three days.
You exercise your call options after these three days.
What's the return of your investment over these three days?
Enter a number with two decimal points. Answer the question in percentage terms, i.e., if the answer is 20%, enter 20.00.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Accounting

Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik

10th edition

0-07-794127-6, 978-0-07-79412, 978-0077431808

Students also viewed these Finance questions