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Justin Freez Purchased a Put Option on General Auto's Common

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Essay

Justin Freez purchased a put option on General Auto's common stock at $2.90. The put has a striking price of $40 and General Auto's common stock is priced at $42.00. What is the most that Justin can lose on the put option purchase?


Definitions:

Imperfectly Competitive Firm

A business operating in a market where it has some control over the price of its product because competition is not completely intense.

Marginal Revenue

The additional revenue that a firm receives from selling one more unit of a product.

Barriers to Entry

Obstacles that deter or limit the ease with which newcomers can penetrate an industry or business field.

Government Regulation

Rules established by authorities designed to control and guide the practices of businesses, protect consumers, and support fair market competition.

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