You Own 5,000 Shares of Miller Stock Which Is Currently

question 31

Multiple Choice

You own 5,000 shares of Miller stock which is currently valued at $37 a share.The $40 put has a premium of $2.30 and a put delta of -0.25.What position should you take in $40 put contracts to hedge your stock against a $1 decrease in price?

• A) buy 200 contracts
• B) buy 1,200 contracts
• C) buy 20,000 contracts
• D) write 200 contracts
• E) write 1,200 contracts

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Definitions:

Firm Offer

An offer in a contract that is expressed in a way that it cannot be revoked for a certain period of time.

Merchant

An individual or business entity engaged in the trade of goods, services, or both, to consumers.

Bilateral Contract

A mutual agreement between two parties where each promises to perform an act in exchange for the other party's act.

Valid Contract

A legally binding agreement between parties that is enforceable by law, meeting all essential elements like offer, acceptance, consideration, and mutual intent.