I think it\'s B. Please explain answer if you can. It must be A, B, or C below t
ID: 2711400 • Letter: I
Question
I think it's B. Please explain answer if you can. It must be A, B, or C below to be correct. Thanks for your help!
Suppose a European call option to buy a share for $100.00 costs $5.00. The stock currently trades for $97.00. If the option is held to maturity under what conditions does the holder of the option make a profit? Note: ignore time value of money.
A.) When the price of the stock is greater than $102.
B.) When the price of the stock is greater than $105.
C.) When the price of the stock is greater than $100.
Explanation / Answer
B.) When the price of the stock is greater than $105. Price paid for call option is 5.00 Strike price or the price at which it can be bought is 100.00 Thus If the price is 105 then investor will make no profit since Purchase price (Strike price) 100.00 Sale Price (Sale in open market) 105.00 Gain On sales 5.00 Price of put option 5.00 Net Gain(5-5) 0.00 Thus investor will make a profit if price is greater than $105.