What is the maximum loss amy can incur from the call

Assignment Help Operation Management

Reference no: EM131801174

Amy owns 100 shares (1 round lot) of ABC stock with a cost basis of $35 a share. The stock is currently trading at $54 a share. Amy believes the price of ABC stock will fall to $45 a share in the near future but over the longer term of 3 to 5 years, increase in value to $75 a share. Amy would like to benefit from the expected near-term decline if it occurs. Therefore, Amy writes a call covered (= not naked) at a strike price of $55 and a premium of $2.

(a) How will the call help Amy profit if the expected price decline occurs? Explain What would be her total profits? Show all calculations.

(b) What is the maximum loss Amy can incur from the call? Explain What would be her total profits? Show all calculations.

Reference no: EM131801174

Questions Cloud

List the three kinds of warranties : List the three kinds of warranties and give an example of each.

State building-electrical and life safety codes : Reflect on if you were a safety manager. How would you respond to the overlap in OSHA standards and local or state building, electrical, and life safety codes?

Balanced goals for individuals for your chosen organization : Reflect on the internal and external situations that pose threats to having balanced goals for individuals for your chosen organization.

Develop model of three-workstation serial production line : Develop a model of a three-workstation serial production line with high reject rates, 7% after each workstation.

What is the maximum loss amy can incur from the call : What is the maximum profit Amy can incur from the call? Explain. What is the maximum loss Amy can incur from the call?

Challenges the company faces as it develops its response : Fritidsresor Under Pressure. What are the major challenges the company faces as it develops its response?

Transportation sector create private monopoly : Can deregulation in transportation sector create private monopoly?

Explain the distinct cost pressures-responsiveness pressures : Explain the distinct cost pressures, responsiveness pressures and other pressures leading to the distinct global,

Produces specially coded computer chips for laser surgery : Hilliard Electronics produces specially coded computer chips for laser surgery in 64MB, 256MB, and 512MB sizes.

User Account

All Pages