Problem: The current price of XYZ stock is $55, and two-month European call options with a strike price of $56 currently sell for $11. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,500.
a. How much is the profit (loss) for strategy A if the stock closes at $65?
b. How much is the profit (loss) for strategy B if the stock closes at $65
c. How high does the stock price have to rise for strategy B to be more profitable?