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Answer the following:

a). You feel that XYZ stock is a good investment, but don’t have the capital to buy a significant number of shares. Instead you choose to buy 100 call options on XYZ stock with premiums of $2.50 per option. The strike price is $35 and the stock is trading at $32 today. The options expire in 6 months. Draw the payoff diagram for these call options, labeling the strike price, breakeven point, and profit area.

b).Using the above information in the previous question, what would your net profit be (including all costs) if the options were exercises when the price is $38?

c).. Using the information in question #1(a), what would be the profit (including all expenses incurred) be if the options expire when the stock is trading at $36/share?


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