Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 15, Problem 13PS

The common stock of the R.U.I.T. Corporation has boon trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $ 1 00 per share, the price of a three-month call option with an exercise price of $ 1 00 is $ 1 0 , and a put with the same expiration date and exercise price costs $ 7 . LO 15 2
a. What would be a simple options strategy to exploit your conviction about the stock price’s future movements?
b. How far would the price have to move in either direction for you to make a profit on your initial investment?

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