What is maximum loss premium paid to own option contract

Reference no: EM133333454

Assignment:

A trader is very bullish on stock XYZ trading at $50. The trader is either risk-averse, wanting to know beforehand their maximum loss, or wants greater leverage than simply owning shares of XYZ. The trader expects XYZ to move above $53.10 per share in the next 30 days. The trader selects the $52.50 call option strike price which is trading for $0.60. For this example, the trader will buy only 1 option contract (Note: 1 contract is for 100 shares).

What is the maximum loss premium paid to own the option contract?
if 100 shares of the stock move $1 increase, then how much the trader would profit?
if the stock price above $53.10 (the call options breakeven point), moved $1 increase, then how much the option contract would make the profit?
So if the stock close at $55.00 by the expiration date, what is the profit of the owner of the call option?
If the stock price close at $52.75 by expiration, how much the options trader would lose money?

Reference no: EM133333454

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