The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000. a. How much is the profit (loss) for strategy A if the stock closes at $65?(sample answer: $100.25 or -$100.25) b. How much is the profit (loss) for strategy B if the stock closes at $65? (sample answer: $100.25 or -$100.25) c.How high does the stock price have to rise for strategy B to be more profitable (break-even point)? (sample answer: $100.25)
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The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000.
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