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15

The price of a stock on February 1 is $48. A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2. The options are exercised when the stock price is $39. The trader’s net profit or loss is

A. Loss of $800

B.Loss of $200

C. Gain of $200

D.Loss of $900

A. Loss of $800

B.Loss of $200

C. Gain of $200

D.Loss of $900

Answer: C

The payoff is 40−39 or $1 per option. For 200 options the payoff is therefore 1×200 or $200. However the premium received by the trader is 2×200 or $400. The trader therefore has a net gain of $200.

The payoff is 40−39 or $1 per option. For 200 options the payoff is therefore 1×200 or $200. However the premium received by the trader is 2×200 or $400. The trader therefore has a net gain of $200.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015