Reference no: EM133002844
John has been following the stock market very closely over the past 18 months and has a strong belief that future stock prices will be significantly higher. He has two alternatives that he can follow. The first is to use a long-term strategy-purchase the stock today and sell it sometime in the future at a possibly higher price. The other alternative is to buy a three-month call option. The relevant information needed to analyze these alternatives is presented below:
-Current stock price=$49
-Desires to buy one round lot=100 shares
-Three-month call option has a strike price of $51 and a call premium of $2a. In scenario one, if the stock price three months from now is $58:
-What is the long-position profit or loss?
-What is the breakeven point of the call option?
-Is the option in or out of the money?
-What is the option profit or loss?b. In scenario two, if the stock price three months from now is $42:
-What is the long-position profit or loss?
-What is the breakeven point of the call option?
-Is the option in or out of the money?
-What is the option profit or loss?I also need help forming a spreadsheet model, in order to calculate the profits and/or losses from investing in the option described.
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