a. Calculate the holding period returns for a long stock position and a long call position...

a. Calculate the holding period returns for a long stock position and a long call position if the stock price is $30, $40 and $50 on the expiration date. Assuming the stock was purchased at $40 and the call was purchased at $5.24 with exercise price of $40.

b. Compare your calculation results for Part a, explain why a long position in call can provide leverage to the investor.

c. If the price of SAS stock had stayed at $40 on Date T (expiry date of the option) and then rose to $50 on Date T+1 (the following day). What are the holding period returns for the long stock position and the long call position over the period of Date 0 to Date T+1?

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ekkarill92 answered 1 year ago

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