The current price of a certain stock is £32, and a 3-month European call option with a strike of £33 costs £3.20. You believe that this stock will rise sharply in the coming months, so you would like to invest £6,400 in either the stock or options. What is the potential profit and loss from each alternative investment if the share price rises to £40 at expiration? What if the share price goes down to £25 at expiration? Draw a graph to represent your profit and loss profile of the option investment. Show in your graph the strike price, the breakeven point, and the potential maximum loss.
The current price of a certain stock is £32, and a 3-month European call option with a strike of £33 costs £3.20. You believe that this stock will rise sharply in the coming months, so you would like to invest £6,400 in either the stock or options. What is the potential profit and loss from each alternative investment if the share price rises to £40 at expiration? What if the share price goes down to £25 at expiration? Draw a graph to represent your profit and loss profile of the option investment. Show in your graph the strike price, the breakeven point, and the potential maximum loss.
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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The current price of a certain stock is £32, and a 3-month European call option with a strike of £33 costs £3.20. You believe that this stock will rise sharply in the coming months, so you would like to invest £6,400 in either the stock or options. What is the potential profit and loss from each alternative investment if the share price rises to £40 at expiration? What if the share price goes down to £25 at expiration? Draw a graph to represent your profit and loss profile of the option investment. Show in your graph the strike price, the breakeven point, and the potential maximum loss.
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