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All main topics / Finance & Investment / Derivatives / Derivatives
14
The price of a stock on February 1 is $84. A trader buys 200 put options on the stock with a strike price of $90 when the option price is $10. The options are exercised when the stock price is $85. The trader’s net profit or loss is
A.Loss of $1,000
B.Loss of $2,000
C.Gain of $200
D.Gain of $1000
Answer: A
The payoff is 90−85 or $5 per option. For 200 options the payoff is therefore 5×200 or $1000. However the options cost 10×200 or $2000. There is therefore a net loss of $1000.
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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015

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