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An option on IBM has an exercise price of $160 and is selling for $8.00. IBM’s...

An option on IBM has an exercise price of $160 and is selling for $8.00. IBM’s stock is currently selling for $165. Graph the payoff and profit/loss line for an individual who bought this call option. Label the axis and show the break-even point.

Solutions

Expert Solution

X = $160

C = $8

Long call payoff = max(St - X, 0)

Long call payoff = max(St - 160, 0)

Long call profit = Long call payoff - C

Long call profit = max(St - 160, 0) - 8

Breakeven point = Strike Price + C

Breakeven point = 160 + 8 = $168

jeff jeffy answered 1 year ago
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