Draw a diagram illustrating how the profit for the writer

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Reference no: EM132005520

Suppose that a European call option to buy a share for $40.00 costs $4.00 and is held until maturity.

A) Under what circumstances will the holder of the option make a profit?

B) Under what circumstances will the option be exercised?

C) What is the stock price at which the holder makes no profit or loss?

D) Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option.

E) Draw a diagram illustrating how the profit for the writer of the option a short position in the option depends on the stock price at maturity of the option.

Reference no: EM132005520

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