Business, 28.02.2021 17:10 brifrog13

Anticipating higher share prices, investor A BUYS one futures contract on Amazon. com Inc. with expiration date of September 2006 and a price of $35 per share. On September 2006, the investor will accept delivery of 100 shares of Amazon and pay $35 per share. The investor does not pay anything on the futures contract until she gets the shares. To protect against a decline in Amazon share prices, investor A also BUYS one European PUT option on 100 shares of Amazon with an exercise price of $35 per share, and expiration date of September 2006. The current price of the option is $3 per share. Anticipating higher share prices, investor B BUYS one European CALL option on 100 shares of Amazon. com Inc. with an exercise price of $35 per share, and expiration of September 2006. The current price of the option is $3 per share. For simplicity assume that the interest rate is zero and that the investors do not currently own any shares of Amazon. Calculate the initial cash flow, the break-even stock price at expiration and the maximum profits and losses for each investor. Which strategy is better?

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Anticipating higher share prices, investor A BUYS one futures contract on Amazon. com Inc. with expi...

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