Answer the questions given the following information:
price of a stock $52
strike price of a three-month call $50
market price of the call $4
Is the call “out” of the money?
What is the time premium paid for the call?
What is the maximum possible loss from buying the call? unlimited
What is the maximum profit the buyer of the call can earn? unlimited
What price of the stock will assure that the buyer of the call will not sustain a loss?
If an investor sells the call covered, what is the cash inflow or cash outflow?
After three months the price of the stock is $53
What is the profit or loss from buying the call?
What is the profit or loss from selling the call naked?