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What can you say about these two strategies

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Reference no: EM133040604

Question - You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $30 costs $2. You have $6; 000 to invest.

(1) Identify two alternative investment strategies, one in the stock and the other in an option on the stock.

(2) Suppose the stock price rises to $35 in the next three months. Calculate the return for both strategies.

(3) Suppose the stock price drops to $25 in the next three months. Calculate the return for both strategies.

(4) What can you say about these two strategies?

Reference no: EM133040604

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