Question: In March, a U . S . investor instructs a broker to sell one July put option contract on a stock. The stock price is

In March, a U.S. investor instructs a broker to sell one July put option contract on a stock. The stock price is $42 and the strike price is $40. The option price is $3. Explain what the investor has agreed to. Under what circumstances will the trade prove to be profitable? What are the risks?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Make It Play is a manufacturer that specializes in three types of toy instruments: xylophones, electronic keyboards, and drum sets. Grandparents across the globe flock to stores so they can buy their...

Q:

In March, a US investor instructs a broker to sell one July put option contract on a stock. The stock price is $42 and the strike price is $40. The option price is $3. Explain what the investor has...

Q:

In March, a US investor instructs a broker to sell one July put option contract on a stock. The current stock price is $45 and the strike price is $44. The option price is $3. Explain what the...

Q:

Please write the answer, not the explanation thank you Fall 2020 Assignment 3 Please answer all questions (ON YOUR OWN do not leave any question unanswered. Show your calculations Submit the homework...

Q:

4G .. : Ims.yu.edu.sa 1. Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a...

Q:

1. Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a gain? Under what...

Q:

1. Suppose that a March call option on a stock with a strike price of $50 costs $2.50 and is held until March. Under what circumstances will the holder of the option make a gain? Under what...

Q:

Q Zero_ Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what...

Q:

1. Suppose that a European call option to buy a share for $100.00 costs $5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what...

Q:

2) The current price of a stock is $84. A one-month call option with a strike price of $87 currently sells for $2.80. An investor who feels that the price of the stock will increase is trying to...

Q:

(1) Assume you have a portfolio that contains stocks that track the market index. You now want to change this portfolio to be 20% in commodities and only 80% in the market index. How would you use...

Q:

Graydon Ross CFO of Diversified Industries PLC is discussing the publication of the annual report with his managing director Phil Davison. Graydon says: The law requires us to comply with accounting...

Q:

The manager of the order-distribution center for Northwoods Backpackers has a company directive to downsize his operation. He has decided to conduct work sampling studies of employees in the...

Q:

6. What is the formula to convert a Cartesian X-coordinate to screen pixel coordinates? (Use the variable sx for the screen column, and use sOrigX for the screen column where the Cartesian origin...

Q:

Find the radius of gyration of a plate covering the region bounded by x=3, x=5, y=0, and y=4 with respect to the y-axis.

Q:

b. Do you maintain a planning calendara single place to record daily appointments, deadlines, and tasks?

Q:

2. Many organizations are structured around teams. Teams have proven to be effective in many areas such as improving quality, cost reduction, and new product development. Assess how teams might be...

Q:

a. Do you develop a daily to do list that indicates the activities you hope to work on?