From your corporate finance course you may recall that debt gives corporations leverage. Options also can give investors leverage. Explain how that works.
Consider a stocks that is $20 and you buy a call option with exercise price of also $20. The premium for that call price is $1. Discuss how this option gives investor leverage if stock at maturity ends up at $22.
PROFESSOR'S GUIDANCE FOR THIS WEEK'S LE:
Leverage can boost your profit or losses. Debt can give you leverage, also options can do that as well. Here we investigate impact of a call option on leverage with an example.
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