The desired call option premium be traded

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XYZ’s stock currently sells for $100. Over the 3 months, the stock price will either increase by 10% or decrease by 10%. The 3 month T-Bill rate is 5.0% (annual rate). Suppose that the 3 month option price of XYZ is at 105. What will be the desired call option premium be traded?

Using the example above, calculate the captured profit for your cover call for any stock price within the estimated range (Su & Sd) at expiration if the call option premium is trading at a mispriced price of $3.00 – assuming you borrow the difference at 5.0% for 3 months to purchase the stock.

Reference no: EM131296555

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