The current price of a stock is $105, and three-month European call options with a strike price of $107 currently sell for $5.20. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 1,500 call options. Both strategies involve an investment of $10,500.
Question
What advice would you give if the stock
price increased to $120? How high does the stock price have to rise
for the option strategy to be more profitable?
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