Question

You bought a call option on July 27, 2020 at the exercise price of $65. It expires on October 26, 2020. The stock currently sells for $66., while the call option sells for $6.

a) What is the intrinsic value of the call? What is the time premium paid for the call?

b) What will the value of this call be after expiration if the price of the stock is $99, $65, $99, and $80, respectively?

c) If the price of the stock rises to $80 at the expiration date of the call, what is the percentage increase in the value of the call? Does this example illustrate favorable leverage?

d) If an individual opens a covered call position on this stock, what is the net cost and what will the profit on the position be at the expiration of this position if the price of the stock is $49, $52, $59, $65, $66, $69, and $80, respectively?

e) If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $59, $66, and $80, respectively?

PLEASE SHOW WORK

Answer 1