(Answered) 1 a call option is purchased for 8 and exercised at its

Management Studies

1. A call option is purchased for $8 and exercised at its exercise price of 50. About six months later the stock is sold for $100. Calculate total gains or losses.

2. You have written a put option for $4 and it is exercised on you. The exercise price was 50.

a. Determine the cost basis.

b. Later on you sell the stock at $100. Calculate your gain or loss.

3. You expect the price of the stock to rise but in a range of 36 to 43 during the next 6 months. A call option with exercise price of 35 has a premium (price) of 3 and a call option at exercise price of 45 has a premium (price of 1.50)

a. Design an option spread (bull call spread) and calculate the net payment for it.

b. Calculate the maximum loss

c. Calculate the maximum gain

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