Explain whether the superannuation fund will exercise option

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Reference no: EM132787898

Question - An investor observes a call option on a share which has a premium of $0.68, an exercise price of $13.00 and an expiry of 3 months. The share has an underlying share price of $11.00

Describe a call option, and explain what the premium and exercise price represent.

If an investor believes the share price will increase to $15 over the next 3 months, how can the investor use a call option to benefit from their belief?

At what point would the investor exercise the call option?

A superannuation fund is holding a large number of National Bank Limited shares in an investment portfolio and wishes to protect the value of the investment. The National Bank Limited shares currently trade at $24.49. The superannuation fund buys a put option with an exercise price of $24.00 per share and a premium of $0.95 per share.

Required - By entering into this option strategy, explain whether the superannuation fund will exercise the option if the spot price is above or below the exercise price.

Reference no: EM132787898

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