A Share Is Trading at $50

question 44

Multiple Choice

A share is trading at $50. You believe there is a 60% chance the price of the share will increase by 10% over the next three months. You believe there is a 30% chance the share will drop by 5% and you think there is only a 10% chance of a major drop in price of 20%. At-the-money 3-month puts are available at a cost of $650 per contract. What is the expected dollar profit for a writer of a naked put at the end of three months?

• A)$300
• B)$200
• C)$475
• D)$0

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Definitions:

Skull

The bone structure that forms the head, housing and protecting the brain and supporting the structures of the face.

Depressed

A mood disorder manifesting in feelings of severe despondency and dejection, often with feelings of inadequacy and guilt.

Ligament

Fibrous tissue that connects bone to bone.

Connective Tissue

Tissue that supports, binds together, or separates other tissues or organs in the body.