contestada

Steve bought 300 shares of stock at a price of $20 per share. The price of the stock then went up to $33 per share so Steve decided to hedge his position by purchasing 3 puts at a cost of $120 each. The puts have an exercise price of 30. One week prior to the expiration of the puts, the price of the stock was at $22 per share. If Steve closed out all of his positions at that time, he would have earned a net profit of:_________.
A) $200.
B) $240.
C) $2,640.
D) $3,000.

Respuesta :

Parrain

Answer: C) $2,640

Explanation:

First calculate the profit made on selling the shares.

He bought 300 shares at $20 and is about to sell at $22,

= 300 * (22 - 20)

= $600

He also hedged his invest by buying Put options. Put options are valuable if prices drop and they did because it is at $22 now whereas he bought it at $30.

His profit therefore,

= 300 * ( 30 - 22)

= $2,400

He purchased 3 Put options at $120 each. This is the premium he paid to acquire them. That means he paid,

= 120 * 3

= $360 in premiums for the Puts.

His profit therefore is the profits minus the expenses of the premium.

= 600 + 2,400 - 360

= $2,640

Therefore option C is correct.

Otras preguntas