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You are considering purchasing 500 call options on the common stock of The Big Candy Store, Inc. The stock is currently trading at $52.00 per share. The 3-month option can be purchased for $2.75 per share, and has an exercise price of $56.00.
i. At what stock price will the options be in the money?
ii. At what stock price will the option produce a profit?
iii. Assuming the stock is trading at $58.52 at the time of expiration of the option, what is the payoff? What is the profit/loss?
what is a "reasonable" price to pay for the security?
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