Stock Option Essay

Document Type:Essay

Subject Area:Finance

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This essay will look at a call option on Intel Corporation shares having a strike price of $48 and the expiration date is April 20th. This call gives an investor the right to buy 100 shares of Intel at $48 either before or on 20th April after which the option will be invalid. The right to purchase the shares is only valuable in cases where Intel is trading at a strike price of $48 per share during that particular time. Use of options is considered a risky strategy but can at the same time be profitable. I would be interested in buying the call option at Intel corporation since I expect the price of the stock to rise in the long term. This a profitable investment since the option will sell at $3.

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09 during the date of expiration. Since every option represents an interest for 100 underlying shares the total selling price will be $309. Thus there is a possibility of making a net profit of $159 considering the purchase price of $150. Making a profit/loss at the expiration date is a short term effect of the call option contract. However, Intel may post better growth than what is expected by analysts, leading to a stock reward of both a high raw earning and high price earnings ratio. Another reason is the boom in chip stocks. An exchange traded fund (ETF) for tracking PHLX Semiconductor Sector Index performance is up indicating a boom in chip stocks. Intel being an important part of ETF means the rise in chip stocks will be of great help to the industry.

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