Stock Options a) Essex Company has a price of $55/share today, and you purchase

Question

Stock Options a) Essex Company has a price of $55/share today, and you purchase 2 calls with a $68 strike price for $2.75/share. (Each call consists of 100 share options.) In 6 months, when your options are about to expire, you exercise your options. The stock is trading for $75/share at this time. What is your % return for this 6 month time period? b) If you were long in Essex during this time (i.e., you purchased the equivalent number of shares for $55 and sold them for $75), what would your % return have been? c) For part a, if the stock fell to $48/share during your option period, how much money would you have lost?______________ Is this amount less than what you would have lost if you had been long in the stock (as in part b)?_________ d) From part c, if you take into account Time Value of Money at 10% annual MARR, what was your loss per share of being long in the stock? __________

Explanation / Answer

% return= (68-55)/55]*12/6=0.4727 or 47.27%

% return= (75-55)/75]*100=26.66%

c. The money lost will be 2.75/share...yes

d. 0.1375

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