A call option on 100 shares of stock is purchased for a premium ...

[jilianpiloj]

Question 1

An investor purchases 100 shares of stock for $20 per share. The stock has now risen in price to $44 per share. To cover potential losses, the investor purchases a put option for a premium of $300 with an exercise price of $42 per share. The stock falls to $28 per share, and the investor exercises the option and sells the shares at $42 per share. Ignoring brokerage commissions and taxes, what would be the investor's return from the stock?

◦ 120%
◦ 110%
◦ 95%
◦ 70%

Question 2

A call option on 100 shares of stock is purchased for a premium of $400. The current price of the stock is $42 per share, and the exercise price is $44 per share. The option is exercised when the stock is selling for $50 per share. What would be your return on the option if after exercising it, you immediately sold the stock at the market price of $50 per share? Ignore taxes and brokerage commissions.

◦ 8%
◦ 12%
◦ 50%
◦ 200%

[frejo]

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[jilianpiloj]

Thanks

[frejo]

Welcome