Apple stock is currently trading at a price of $155.39. A November 2017 call option with a strike of 140 is trading at $15.70.
a) What is the value of this option at expiration, as a function of the eventual price of Apple?
b) Suppose that at expiration, the price of Apple stock remains at $155.39. What is the payoff of your option? What is the profit from your option?
c) Suppose instead that at expiration, Apple stock has increased in price by 1%. What is the payoff of your option? What is the profit from your option?
d) Using the results from (b) and (c), give an estimate of the leverage ratio associated with using an option instead of buying a share of Apple stock directly.