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The common stock of Matterport Corporation has been trading in a narrow price range for...

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Finance

The common stock of Matterport Corporation has been trading in a narrow price range for the past a few months, and you are convinced it is going to break far out of that range in the next 1 year. You do not know whether it will go up or down, however. The current price of the stock is $120 per share, and the price of a 1-year call option at an exercise price of $120 is $12 and the put premium with the same strike price and expiration date is $10

  • What would be a simple options strategy to exploit your conviction about the stock prices future movements?

  • What would be the payoff and profit at expiration date of your strategy?

  • Calculate the breakeven stock price(s) at the expiration for this strategy.

  • What would be your profit if the stock price increases by 15% at the expiration for this strategy?

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