Several Rumors Concerning Nu-Tek Stock Are Causing the Market Price

question 388

Multiple Choice

Several rumors concerning Nu-Tek stock are causing the market price of the stock to be quite volatile. Given this situation, you decide to buy both a one-month European $10 put and a one-month European $10 call on this stock. The call premium is $.35 and the put premium is $1.60. What will your net profit or loss be on these option positions if the stock price is $7 on the day the options expire? Ignore trading costs and taxes.

• A) -$495
• B) -$35
• C) $105
• D) $140
• E) $175

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Definitions:

Chapter 7

A provision under the U.S. Bankruptcy Code involving the liquidation of a debtor's property to pay off creditors.

Creditors' Meeting

A gathering during bankruptcy proceedings where creditors can question the debtor under oath regarding their finances and the bankruptcy petition.

Liquidation Schedule

A plan or timetable for selling off assets, typically used in the context of dissolving a business or paying off debt.

Bankruptcy Estate

All legal and equitable interests of the debtor in property at the time of the bankruptcy filing, as defined by bankruptcy law.