Answer:
Price Stock Options
$70 -3200 -25600
$80 0 -25600
$90 3200 54400
Explanation:
<em>Invested in stock</em>
Number of units acquired = $25,600/80 = 320
Now if price goes down to $70 THEN loss will be
320 × (70-80) = - $3,200
percentage of loss will be 3,200/25,600 × 100 = 12.5%
If price stays at $80, then there will neither be a gain nor a loss
320 × (80-80) = 0
If price goes up to $90, then the gain will be
320 × (90-80) = $3,200
percentage of gain will be 3,200/25,600 × 100 = 12.5%
<em>Invested in option</em>
Number of options purchased = $25,600 / 3.20 = 8000
Now If price goes down to $70 then investor will not exercise option in which case loss will be equal to amount of premium paid which is - $25,600.
percentage of loss = 100%
If price stays at $80 even then investor will not exercise call option in which case loss will be equal to the amount of premium paid which is - $25,600
Percentage of loss = 100% loss
If price goes up to $90 then investor will exercise call option
Gain due to exercise of call option = 8000 × (100 - 90) = 80,000
Net gain = 80,000 - 25,600 = $54,400
Percentage gain = 54,400 / 25,600 = 212.5%
