Question

If the stock price is $63, the strike price us $60 and the call option is $5. Ignoring the time value of money, how much price must rise so the purchaser of the call option break even? If answer cannot be determined because some data is missing just write “answer cannot be determined as some data is missing”. (No need to show work)

Answer 1

Call Option = $5 means it is a Call Premium which Call Buyer paid to Call Seller at the time of creation of this Derivative. Basically it is a cost price for this Derivative Instrument for Call Buyer.

Call Buyer is Bullish on market and Speculate that Stock Price at Settlement date will me more than $60, so that he can buy the stock from Call Seller at $60 and enjoy the Upside.

Call Buyer Already Paid $5 to Call Sell, therefore to Breakeven Stock Price must rise to 60 + 5 = $65.

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