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All main topics / Finance & Investment / Derivatives / Derivatives
The price of a stock on February 1 is $124. A trader sells 200 put options on the stock with a strike price of $120 when the option price is $5. The options are exercised when the stock price is $110. The trader’s net profit or loss is
A. Gain of $1,000
B.Loss of $2,000
C.Loss of $2,800
D.Loss of $1,000
Answer: D
The payoff that must be made on the options is 200×(120−110) or $2000. The amount received for the options is 5×200 or $1000. The net loss is therefore 2000−1000 or $1000.

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Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015




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