Question

. You are very bullish (optimistic) on stock EFG, much more so than the rest of the market. In each question, choose the portfolio strategy that will give you the biggest dollar profit if your bullish forecast turns out to be correct. Explain your answer.

Answer 1

Here's the full question;

You are very bullish (optimistic) on stock EFG, much more so than the rest of the market.  In each question, choose the portfolio strategy that will give you the biggest dollar profit if your bullish forecast turns out to be correct. Explain your answer.

a. Choice A: $10,000 invested in calls with X = 50.Choice B: $10,000 invested in EFG stock.

b. Choice A: 10 call option contracts (for 100 shares each), with X = 50.

Choice B: 1,000 shares of EFG stock.

Answer:

Choice A

Explanation:

Remember, a bullish investor is one that is very optimistic as to the returns on investment despite the risk of such investments, and he goes for the biggest dollar profit investment option.

Thus, we note that among the listed investment options, the call options investment has the greatest profit potential this will be the first catch for a bullish investor.