Question
In: Finance
What are the disadvantages of selling call options LEAP ,which allows the seller to sell shares...
What are the disadvantages of selling call options LEAP ,which allows the seller to sell shares at a higher strike price?
Solutions
Expert Solution
Disadvantages:
1. The downside is not protected. It can be an infinite loss to the writer of the call option.
2. The duration is more than a year. So, the seller of the call option is stuck in the contract for more than a year.
3. Seller is under obligation to deliver the underlying, if the buyer of the option calls for it.
jeff jeffy answered 2 years agoRelated Solutions
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The common stock of a company is selling today for $53.69. Call options on the company...
The common stock of a company is selling today for $53.69. Call
options on the company expiring in 1-month with strike prices of
$49 and $56 are selling for $4.80 and $0.36, respectively.
a. How would you form a bull call spread with the two options
(state what kind of options you would buy or sell at what strike
price to form a call spread)? What is the cost of each spread?
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(a) A $5 dividend being paid
(b) A 5-for-4 stock split
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