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13

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

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.

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.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015