An Investor Purchased Both a Put and a Call Option

question 29

Multiple Choice

An investor purchased both a put and a call option on a stock with exercise prices of $40 a share. The put cost $1 and the call cost $3. When the options expire the stock price is $43. What is the investor's net profit?

• A) -$1
• B) $0
• C) $3
• D)$2

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Definitions:

Second Mover

A strategy where a firm enters a market or releases a product after competitors have already established themselves, potentially benefiting from the first mover's market insights and errors.

Homogeneous Oligopoly

A market structure where a few firms offer products or services that are similar and thus, highly substitutable.

Identical Cost

A scenario in which all firms in a market face the same costs of production, leading to uniform pricing strategies.

Demand Curves

A curve representing the correlation between the amount of a product consumers are ready to purchase and its price, assuming other factors remain constant.