Read the following excerpt and draw a profit diagram based on the option positio

Question

Read the following excerpt and draw a profit diagram based on the option positions. Show all the critical points on the diagram. For example, the intercepts on axes, maximum profit or maximum loss. Note that once option contract trades 100 options. Shares of BAC are currently off by more than 1% to $4.83, and one trade in particular caught our attention today. It appears as though one investor may have purchased 1,000,000 underlying shares of the bank at $4.62 and simultaneously sold 10,000 calls at the May 5.0 strike price for a premium of $124 per contract. Source: Forbes.com

Explanation / Answer

There is on issue in the question Note: The premium amount $ 124 is not feasible and beyond the range.

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