Francis, wishes to become a shareholder of the company Suncor Inc. But he believes that the actions of Suncor Inc. are undervalued in view of the financial economic performance and development prospects of the global energy sector.  Francis plans to acquire options on Suncor shares to take advantage of his expectations. On March 1, 2019, Suncor stock is worth $45.60. The same day, the European call option associates this stock with a price of $2.00, with a chance on May 31, 2019 and a strike price of $48.00.  a) What are the expectations of Francis, the buyer of the call?  b) What is the profitability threshold of the operation?  c) If on May 31, 2019, the stock prices $54.00, what will be the result (payoff) for Francis?  d. Graphically determine the buyer's gain profile based on the change in Suncor's stock price (by varying the price from $40.00 to $60.0?

 

Answer rating: 100% (QA)

a As the buyer of the call option Francis expects the price of Suncor stock to rise above the strike ... View the full answer