Assume That Call Options on Microsoft Stock with the Same

question 84

Essay

Assume that call options on Microsoft stock with the same exercise date in October are available with exercise prices $45,$55,and $65.Also assume that the price of the middle call were the average of the other two calls.Show that if you sell two of the middle calls and use the proceeds to buy one each of the other calls,your proceeds in October may be positive but cannot be negative despite the fact that your net outlay today is zero.What can you deduce from this example about option pricing?

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Definitions:

Collective Unconscious

A term coined by Carl Jung to describe structures of the unconscious mind shared among beings of the same species.

Preconscious

Thoughts and feelings not currently in conscious awareness but that can easily be brought to consciousness.

Internalized Ideals

Beliefs, values, or norms that an individual adopts and integrates into their sense of self.

Superego

In psychoanalytic theory, the part of the personality that represents ethical or moral standards and strives for perfection.