Suppose you think Paypal stock (PYPL) is going to appreciate substantially in value in the next year.

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Suppose you think Paypal stock (PYPL) is going to appreciate substantially in value in the next year. Say the stocks current price is $62, and the call option expiring in one year has an exercise price of $55 and is selling at a price of $10. With $62,000 to invest, you are considering three investment strategies:

A. Invest all $62,000 in the stock, buying 1,000 shares.

B. Invest all $62,000 in 6,200 options (62 contracts).

C. Buy 15 contracts and invest the remaining in a money market fund paying 5.0% interest annually.

What is your rate of return for Strategy A if the stock price one year from now is $75?

Posted Date: May 18, 2024 12:12 PM

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Suppose you think Paypal stock (PYPL) is going to appreciate substantially in value in the next year.

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