Question

The current price of a stock is $$\$ 94$$, and 3-month European call options with a strike price of $$\$ 95$$ currently sell for $$\$ 4.70$$. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (=20 contracts). Both strategies involve an investment of $$\$ 9,400$$. What advice would you give? How high does the stock price have to rise for the option strategy to be more profitable?

   The current price of a stock is $$\$ 94$$, and 3-month European call options with a strike price of $$\$ 95$$ currently sell for $$\$ 4.70$$. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (=20 contracts). Both strategies involve an investment of $$\$ 9,400$$. What advice would you give? How high does the stock price have to rise for the option strategy to be more profitable?

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 1, Problem 36

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- The current price of the stock is $94. - Buying 100 shares would cost: 100 shares * $94/share = $9,400. Show more…

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The current price of a stock is $$\$ 94$$, and 3-month European call options with a strike price of $$\$ 95$$ currently sell for $$\$ 4.70$$. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2,000 call options (=20 contracts). Both strategies involve an investment of $$\$ 9,400$$. What advice would you give? How high does the stock price have to rise for the option strategy to be more profitable?

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