Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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A stock market speculator can choose between (i) buying 1000 shares of
a certain stock for $80 per share, and (ii) buying 10, 000 European-style
call options on the stock with a strike price of $90 for $8 per option.
Which of the following is true? For choice (ii) to give a better result when
the option matures, the share price must be above:
Expert Solution
Step 1 Explanation
A call option is a option which gives you the right but not the obligation to buy the underlying stock. A call holder benefits from a call option if the spot price moves up the strike price.
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