A stock is trading at $70. You believe there is a 70% chance the price of the stock will increase by 10% over the next 3 months. You believe there is a 10% chance the stock will drop by 10%, and you think there is only a 20% chance of a major drop in the price of 40%. At-the-money 3-month puts are available at a cost of $850 per contract. What is the expected dollar profit for a writer of a naked put at the end of 3 months?
An investor purchases a long call at a price of $2.75. The strike price at expiration is $40. If the current stock price is $40.10, what is the break-even point for the investor?