Houston stock is selling for $47 and has the following six-month options outstanding.

 
 

	Strike Price	Option Market Price
Call Option	$45	$5
Call option	$50	$2

  
a. Which option(s) is (are) in the money?
b. What is the time premium paid for each option?
c. What is the profit (loss) at expiration if the stock price at expiration is $60 if the investor buys the call with the $45 strike price?
d. What is the profit (loss) at expiration if the stock price at expiration is $40 if the investor buys the call with the $50 strike price?
e. Estimate profit and loss if the investor buys the stock and sells the call with the $50 strike price if at the expiration stock price is $60. What is the breakeven stock price at expiration for investor to make profits?
f. Estimate profit and loss if the investor buys the stock and sells the call with the $45 strike price if at the expiration stock price is $55. What is the breakeven stock price at expiration for investor to make profits?

Answer rating: 100% (QA)

Answer Houston Stock Options Analysis a Calls in the Money Since a call option gives the buyer the right to buy the stock at a certain price strike price by the expiration date an option is considered ... View the full answer