Comment on how leverage works in purchasing a call option.
Answer to relevant QuestionsA stock has an exercise (strike) price of $40. a. If the stock price goes to $41.50, is the exchange likely to add a new strike price? b. If the stock price goes to $42.75 is the exchange likely to add a new strike price? Assume a stock is selling for $48.50 with options available at 40, 50, and 60 strike prices. The 50 call option price is at 2.75. a. What is the intrinsic value of the 50 call? b. Is the 50 call in the money? c. What is the ...Why is there substantial leverage in commodity investments? An investor purchases a 25,000-pound contract for copper at $2.10 per pound with an initial margin requirement of 6 percent. The price goes down to $2.06 after a year. What are the dollar and percentage losses? Why are stock index futures and options sometimes referred to as derivative products? Why do some investors believe derivative products make the markets more volatile?
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