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Old 05-04-2009, 03:46 PM
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Join Date: May 2009
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Default Please help with buying options question

Hi, I have an exam tomorrow and this was one of the past questions. Its too late now to get help from a tutor and i cant find the answer in text books.

How can you profit if you expect that BAA share price will be 500p by April 2000? justify your choice of exercise price?
.............................Call Put
...........Jan___Apr__Jun_____Jan__Apr__...
460____27.5___43__53______19___29_____...
500____11____25.5_36______43___52_____...


If you buy a 460 call option for april and the price goes to 500 you will gain 40p per share but lose 43p premium so incur a loss. If you buy a 460 put option for 29 and the price goes up you lose also.
If you buy the 500 option for 25.5 again you would lose the premium and if you buy the 500 put option for 52 you also lose.

Please what am i not seeing? Thank you very much
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