Explain Why the Prices of the $12

question 75

Essay

Explain why the prices of the $12.00, $12.50 and $13 October XYZ calls differ, assuming that the shares are trading at $12.55.

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Definitions:

Excessive Inventory

A larger amount of stock than what is needed, leading to unnecessary storage costs and potential obsolescence.

Demand Volatility

The degree to which demand for a product or service can fluctuate unpredictably over a certain period, affecting supply chain and inventory management strategies.

Safety Inventory

Inventory kept as a buffer against forecasted demand and supply variability to prevent stockouts.

Forecasted Demand

The estimated amount of product or service that will be bought by customers in a future period, often used for planning in business operations.