Stock versus Options (*NOTE: DO NOT WORRY ABOUT THE $40 CALCULATION)
Stock in Cheezy Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices at $50 and $60.
The option premium is $1.95, so an option contract costs $195.
1. How many shares can be purchased with $97,500?
2. How many contracts can by purchased with $97,500?
3. If the stock is selling for $60 in 90 days then the payoff is: $
4. If the stock is selling for $60 what is the % gain?
5. If the stock is selling for $60 what is the profit on the options?
6. If the stock is selling for $50 in 90 days then the payoff is: $
7. If the stock is selling for $50 in 90 days then your option is worth: $