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The current price of XYZ stock is $50, and two-month European call options with a strike...

The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000.

a. How much is the profit (loss) for strategy A if the stock closes at $65? (sample answer: $100.25 or -$100.25)

b. How much is the profit (loss) for strategy B if the stock closes at $65? (sample answer: $100.25 or -$100.25)

c.How high does the stock price have to rise for strategy B to be more profitable (break-even point)? (sample answer: $100.25)

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
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