Jacques wants to profit from the continuous increase in price of European stocks. Since they have been
Question:
Jacques wants to profit from the continuous increase in price of European stocks. Since they have been very volatile in the last year, he decides to buy a call option on an ETF (iSHARES EURO STOXX 50). If he buys a call option for €3, with a strike price of €25.00, and each option has right over 100 underlying shares, what would be his profit and loss if during the year the ETF was trading at €23.49?
Step by Step Answer:
Calculation of profit loss during year Current trading pri...View the full answer
Fundamentals Of Investing
ISBN: 9780135175217
14th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Related Video
A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.
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