Circular File Stock Is Selling for $25 a Share

question 13

Essay

Circular File stock is selling for $25 a share.You see that call options on the stock with exercise price of $20 are selling at $3.What should you do? What will happen to the option price as investors identify this opportunity? Then you observe that put options on Circular File with exercise price $30 are selling for $4.What should you do?

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Definitions:

Significant Influence

A level of control over a business entity that is less than control but more than minor influence, often indicated by owning a substantial minority of voting shares.

Net Book Value

The value of an asset after accounting for depreciation or amortization, representing its estimated current value.

Equity Income

Income derived from investments in stocks, often through dividends or profit from equity investments.

Significant Decline

A substantial reduction in value or quantity over a period, often used to describe a marked drop in financial markets, asset values, or economic conditions.