The Market Price of ABC Stock Has Been Very Volatile

question 50

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

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Definitions:

Liability

A company's legal financial debts or obligations that arise during the course of business operations.

Dividends

Regular payments made by a corporation to its shareholders out of its profits or reserves.

Shareholders

Persons or organizations that possess stock in a corporation, thus holding a stake in the business.

Double Entry System

A method of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account, effectively balancing the accounting equation.