Today's price of the Tesla, Inc. stock is So = $812. An investor who feels that the price of the Tesla stock will increase within the next 3 months is trying to decide between buying today (i) one share, or (ii) five 3-month European call options with strike price K to buy one share in T = 3 months at price K. $850 which are currently selling for $100. Each call option gives the right (a) Provide the profit and loss of both strategies in T = prevailing Tesla stock price ST. How high does Tesla's stock price ST have to rise for strategy (i) to be profitable at time T? How high does Tesla's stock price ST have to rise for the call option strategy (ii) to be profitable at time T? Sketch the graph of both 3 months as a function of the then functions and add suitable annotations. (b) How high does Tesla's stock price ST have to rise for the call option strategy (ii) to be more profitable than strategy (i) at time T? (c) Suppose Tesla's stock price in three months will be ST = $1,200 or ST = $800, respec- tively. What is the corresponding P&L of both strategies? (d) Very briefly discuss the comparison of both strategies (advantages and disadvantages).

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.