Tutorial 7.

2_CALL OPTION

Assume the market price for a share of common stock is RM30. You are considering to buy a call
option to sell 200 shares of the stock at a strike price of RM30 per share. The premium for the
option is RM5.00 per share.

Required:

(i) Calculate how much gain or loss you make if the market price of the stock increase to RM40
per share.
(ii) If the market price of the stock goes up to RM20 per share, how much is your profit or loss.
State your strategy.
(iii) Based on your answer in part (a) and (b) above, compute the share’s break-even price AND
draw a basic pay-off diagram.