An option to buy a stock is priced at $200. If the stock closes above 30 on May 15, the option will be worth $1000. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth $200. A trader thinks there is a 50% chance that the stock will close in the 20-30 range, a 20% chance that it will close above 30, and a 30% chance that it will fall below 20 on May 15.
a) How much does she expect to gain?
b) What is the standard deviation of her gain?

  • CreatedMay 14, 2015
  • Files Included
Post your question