Losing Money Buying Call Paper




I am making this assignment as of February 3rd, so I don’t know the current state of the Coronavirus in China or the rest of the world, but this article can still serve as the basis of a good question.

https://www.wsj.com/articles/coronavirus-closes-china-to-the-world-straining-global-economy-11580689793?mod=hp_lead_pos1&mod=article_inline (Links to an external site.)

Assume that it is early February and that you are tracking the steep decline in Chinese markets. Further, assume that you are convinced that the Chinese government will get a good handle on the virus and that the markets will return to higher levels within a few months. There are many call options contracts available on indices that track the Chinese markets. Why is there a good chance that you will lose money when buying a call, even if you are correct and the Chinese stock market slowly recovers? (700words)


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