Shares of google common stock

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Reference no: EM133055837

Today is January. You take a short position in 100 shares of Google common stock at a share price of $600. You would like protection from the risk that Google's stock price might rise rather than fall as you forecast. Suppose that you decide to "fully insure" your short sale over the next five months by buying a June call option with a strike price of K = $600. You have the following information (all prices are per share).

-Google's stock price today: $600.

-Google does not pay dividends.

-June call options on Google common stock with a strike price of K = $600 have a premium of c = $39.85 per share.

-Time to expiration is approximately five months; hence, T = 5/12 year.

-The continuously compounded, annualized risk-free rate is 0.46%. At expiration of your call option, Google's share price is $700. What is your profit (or loss) per share? Assume a margin requirement of 50%. Choose the best answer. (Assume that all positions are held open until expiration.)

Reference no: EM133055837

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