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You are bullish on Amazon’s stock (AMZN) which is currently selling for $596.50. You have decided to buy a 6-month call option with a strike price of $625. It costs $50.60 per share to buy the option and it is for 100 shares. Assume the 6-month risk-free rate is 1% with continuous compounding.

a. What is the payoff and profit function of the long call option at expiration? (Provide labels or a table with the payoff at the strike price and a point above and below the strike)

b. What is the payoff and profit function of the short call option at expiration? (Provide labels or a table with the payoff at the strike price and a point above and below the strike)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92256155

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