The Market Price of ABC Stock Has Been Very Volatile

question 434

Multiple Choice

The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks. Thus, you decide to purchase a one-month call option contract on ABC stock with a
Strike price of $25 and an option price of $1.30. You also purchase a one-month put option on ABC
Stock with a strike price of $25 and an option price of $.50. What will be your total profit or loss on
These option positions if the stock price is $24.60 on the day the options expire?

• A) -$180
• B) -$140
• C) -$100
• D) $0
• E) $180

---

Definitions:

Price Searchers

Sellers who have the ability to control and set prices because their products do not have perfect substitutes.

Marginal Revenue

The additional income that a firm receives from selling one more unit of a good or service.

Average Total Cost

The sum of all production costs (fixed and variable) divided by the quantity of output, indicating the per-unit cost of production.