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Today you bought one call option (i.e., long call) on LuckyCorp stock. The option price is $6 with an expiration date in 2 months and an exercise price of $20. The current stock price is $25.
– What is the Intrinsic Value of this option? What is its Time Value? Is this option At-The-Money, In-The-Money or Out-of-The-Money?
– LuckyCorp can have a stock price between $0 to $50 in 2 months, with increments of $5. In other words, LuckyCorp’s stock price can be $0, $5, $10……$45 or $50 in 2 months. Decide if you are you going to exercise the call option under each of these possible stock prices.
– Calculate the Payoff of this long call position at expiration for each possible stock price.
– Calculate the Profit of this long call position at expiration for each possible stock price.
– Plot your results from (3) and (4) together on one scatter chart to display Payoff and Profit functions of this long call position.
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