Question

The spot offer price of a certain stock is $882.4. The offer price of a call...

The spot offer price of a certain stock is $882.4. The offer price of a call option with a strike price of $880 and a maturity date of September is $43.50. A trader is considering two alternatives: Buying 10 shares of the stock or buying 100 September call options. For each alternative, calculate the following:

(a) Upfront cost

(b) Total gain if the stock price in September is $930

(c) Total loss if the stock price in September is $820

Assume that the option is not exercised before September. If stock is purchased using the call, it is immediately sold in September.

Homework Answers

Answer #1

1. Upfront cost = $13,174

2.Total profit=$1,126

3. Total loss =$4,974

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