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4) On 14 May 2015 MSFT is trading at $48.72 per share. The price of a call option on MSFT expiring 15 Jan 2015 is $2.92 for options where X = $49 and $1.60 where X = $52.50 a. You think that MSFT will rise, and you want to speculate. Complete the table and graph the present profit vs. the stock price at expiration. b. Which strategy is preferrable? Why?

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12345678 1 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 A Exercise price 49 52.5 Investment A: 1000 options, X=49 B: 1000 options, X=52.5 Stock price on the expiring date, ST 0.0 10.0 20.0 22.0 24.0 49.0 52.5 56.7 60.0 65.0 70.0 75.0 80.0 85.0 90.0 B Call price 2.92 1.6 C 2,920 12345678 1 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 A Exercise price 49 52.5 Investment A: 1000 options, X=49 B: 1000 options, X=52.5 Stock price on the expiring date, ST 0.0 10.0 20.0 22.0 24.0 49.0 52.5 56.7 60.0 65.0 70.0 75.0 80.0 85.0 90.0 B Call price 2.92 1.6 C 2,920

Answer rating: 100% (QA)

A Stock Price at Expiration Strategy A Strategy B 49 0 0 525 3 16 567 ... View the full answer