The current stock price is $35.00 and a six-month European call option with a strike price of $37.00 costs $1. An investor has $7000 to invest. i. Discuss one strategy of investment that only relies on the stock and another that only relies on the derivative asset.

ii. When do the two strategies generate the same profit?

iii. Distinguish different situations and compare the profit or loss of each strategy in each situation.

Answer rating: 100% (QA)

i Strategy 1 Investing only in the stock The investor could buy 200 shares of the stock at the curre... View the full answer