Question

In: Finance

An investor is committed to purchasing 100 shares of World Port Management stock in six months....

An investor is committed to purchasing 100 shares of World Port Management stock in six months. She is worried the stock price will rise significantly over the next six months. The stock is at $45 and she buys a six-month call with a strike of $50 for $250. At expiration the stock is at $54. What is the net economic gain or loss on the entire stock/option portfolio?

Why in this exercise we have to take into consideration the $45 stock price if the investor buy the call option for 50 and will exercise since the price increase to 54?

I think the investor will make a gain of 54-50)*100-250= 150.  

The part I dont undertand is the first part of the solution where it is calculated (45-54)*100?

Solutions

Expert Solution

Answer is given in the below attached image

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

An investor buys 100 shares of a stock, shorts 60 call options on the stock with...
An investor buys 100 shares of a stock, shorts 60 call options on the stock with strike price of $20 and buys 60 put options on the stock with strike price of $10. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.
An investor buys 100 shares of a stock, shorts 50 call options on the stock with...
An investor buys 100 shares of a stock, shorts 50 call options on the stock with strike price of $80 and buys 50 put options on the stock with strike price of $40. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.
An investor shorts 100 shares of a stock at $52 per share with initial margin of...
An investor shorts 100 shares of a stock at $52 per share with initial margin of 50% and no interest. The maintenance margin is 30%. Suppose the closing prices for the stock over the next three days is $56, $60 and $58. What are the values for margin and equity in the investor’s account at the end of day three?
An investor owns 12000 shares of a particular stock. The current market price is 100.what is...
An investor owns 12000 shares of a particular stock. The current market price is 100.what is the "worst case" value of the portfolio in six months. For the purpose of this question, define the worst case value of the portfolio as the value which is such that there is only a 1% chance of the actual value being lower. Assume that the expected. Return and vitality of the stock price are 8.5% and 23% respectively.
An investor purchased 200 shares of stock at $100 per share on 65% margin. Suppose the...
An investor purchased 200 shares of stock at $100 per share on 65% margin. Suppose the maintance margin is 40% at what price does the investor get a margin call? Regarding the previous question, if the price declines to $70 per share whats the return to the investors equity? What if the stock price rises to $150 per share? ignore interest and transaction costs.
An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct...
An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct 60 put @$6. The maximum potential gain is: (Show your work).
An investor purchased 100 shares of common stock at Ghc20 per share one year ago. The...
An investor purchased 100 shares of common stock at Ghc20 per share one year ago. The company declared and paid a dividend of Ghc2 per share during the year. The investor sold the stock for Ghc21 per share after the one year holding period. Calculate the cedi return from this investment. Calculate the HPR for this investment. Partition the HPR into its dividend and capital appreciation components.
An investor owns 5,000 shares of stock AB, which is currently trading at $100 per share....
An investor owns 5,000 shares of stock AB, which is currently trading at $100 per share. The investor is fearful of a sharp decrease of the stock price. He decides to buy 50 December 95 put option at a price of $3, paying $15,000.  Note: Each put option contract provides for the right to sell 100 shares of stock. December 95 put option means that the strike price of the put is 95 and it matures in December. If IBM stock...
An investor owns 5,000 shares of stock AB, which is currently trading at $100 per share....
An investor owns 5,000 shares of stock AB, which is currently trading at $100 per share. The investor is fearful of a sharp decrease of the stock price. He decides to buy 50 December 92 put option at a price of $3, paying $15,000. Note: Each put option contract provides for the right to sell 100 shares of stock. December 92 put option means that the strike price of the put is 92 and it matures in December. If IBM...
John purchased 100 shares of Black Forest Inc. stock at a price of $151.53 three months...
John purchased 100 shares of Black Forest Inc. stock at a price of $151.53 three months ago. He sold all stocks today for $155.40. During this period the stock paid dividends of $4.80 per share. What is John’s annualized holding period return (annual percentage rate)? Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT