Problem: Consider a European call option on stock A that expires on December 21 and has a strike price of $50.00.
1) If stock A is trading at $55 on December 21, what is the pay off to the owner on the option?
2) If Stock A is trading at $55 on December 21, what is the pay off to the seller of the option?
3) If stock A is trading at $45 on December 21, what is the pay off to the owner on the option?
4) If Stock A is trading at $45 on December 21, what is the pay off to the seller of the option?
5) Draw the payoff diagram to the owner of this option with respect to the stock price at expiration.
6) Draw the payoff diagram to the seller of this option with respect to the stock price at expiration.
7) If the seller of a call option never receives cash at expiration, why would anyone ever sell a call option?