Final Answer:
The speculative value of the call option on ABC stock, given a trading price of $11.58 and a strike price of $72.57 with the ABC stock at $75.01, is $2.44.
Step-by-step explanation:
To calculate the speculative value of the call option, subtract the strike price from the current stock price:
This result represents the intrinsic value of the option, as it indicates the profit that could be gained by exercising the option immediately. In this scenario, the speculative value is $2.44 per share.
The speculative value is derived from the assumption that the option holder would exercise the option and immediately sell the stock in the market at the current stock price, resulting in a profit equal to the intrinsic value.
It's important to note that the speculative value does not consider factors such as time decay and volatility, which can influence the option's overall value. These factors are typically reflected in the option's premium but are not explicitly calculated in this intrinsic value.
Understanding the speculative value of an option is crucial for investors and traders assessing potential profits and risks. It provides insight into the immediate gain or loss that could be realized by exercising the option under current market conditions.
The complete question is:
"A call option on ABC stock is trading at $11.58. The strike price is $72.57. If the current price of ABC stock is $75.01, what is the speculative value of the call option? Assume a standard option contract represents 100 shares of the underlying stock."