What would be the profit or loss per share of stock to an investor who bought an October expiration Apple call option with an exercise price of $130 if Apple closed on the expiration date at $120? Assume the option premium was $3.00. $3 Loss (2 Marks)
B. Discuss how the premium of a call option changes with the price of the underlying or the maturity of the option? It increases (2 Marks)
C. Suppose that you have $100 million dollar exposure to GM company. The share of the company is trading at a price of $100, but you expect the price to drop significantly during the month. Explain how you can use options to protect your investment? Buy a one month put option. Premium is the insurance cost.
