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Find potential maximum loss

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The current price of a certain stock is £32, and a 3-month European call option with a strike of £33 costs £3.20. You believe that this stock will rise sharply in the coming months, so you would like to invest £6,400 in either the stock or options. What is the potential profit and loss from each alternative investment if the share price rises to £40 at expiration? What if the share price goes down to £25 at expiration? Draw a graph to represent your profit and loss profile of the option investment. Show in your graph the strike price, the breakeven point, and the potential maximum loss.

Reference no: EM133060286

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