Answer:
D) $50
Explanation:
When stock price = 50
Profit on shares = (Stock price - Purchase price) * Number of shares = (50 - 40) * 100 = 1000
Profit on call option = Number of options * (stock price - exercise price - premium paid) = 1000 * (50 - 45 - 4) = 1000
Hence when stock price = 50, both the options would yield the same profit but the call option strategy would have an upper hand in profitability for every price increase above the $50 level because then the share buying strategy would yield $100 profit for every $1 price increase whereas the option buying strategy would yield $1000 profit for the same level of price increase.
Hence for the second option to yield higher profit, the stock price should be above 50.
