Your ethically sourced research indicates a stock (CaronaMeds Co) is about to release amazing new drug...

Transcribed Image Text:

Your ethically sourced research indicates a stock (CaronaMeds Co) is about to release amazing new drug trials which show both safety and efficacy of its new medical treatment for COVID 19. This will cause its stock price to jump from the last trade price of $2.50 to a much higher value, which you estimate to exceed $25 per share. The following instruments are available to you: Type Expiry Strike Price Stock $2.50 Call Dec 20 $2.50 $2.00 Call Dec 20 $10.00 $0.25 Put Dec'20 $2.50 $2.00 Put Dec'20 $0.50 $0.20 You decide on the following cost neutral strategy: Buy $10 Calls and go Short 10,000 shares. What is the P&L of this strategy, if your research is incorrect and the stock stays at $2.50 per share? State your answer in dollars, to the nearest dollar. Your ethically sourced research indicates a stock (CaronaMeds Co) is about to release amazing new drug trials which show both safety and efficacy of its new medical treatment for COVID 19. This will cause its stock price to jump from the last trade price of $2.50 to a much higher value, which you estimate to exceed $25 per share. The following instruments are available to you: Type Expiry Strike Price Stock $2.50 Call Dec 20 $2.50 $2.00 Call Dec 20 $10.00 $0.25 Put Dec'20 $2.50 $2.00 Put Dec'20 $0.50 $0.20 You decide on the following cost neutral strategy: Buy $10 Calls and go Short 10,000 shares. What is the P&L of this strategy, if your research is incorrect and the stock stays at $2.50 per share? State your answer in dollars, to the nearest dollar.

Answer rating: 100% (QA)

Lets analyze the PL Profit and Loss of the costneutral strate... View the full answer