A Put Option Is Purchased for a Premium of $200

question 43

Essay

A put option is purchased for a premium of $200 with an exercise price of $38 per share and a current market price on the stock of $41 per share.What would be the return if the market price declines to $35 per share and the stock is purchased and the option exercised? Ignore taxes and brokerage commissions.Round to the nearest percentage if necessary.
(a)9 percent
(b)15 percent
(c)50 percent
(d)100 percent

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Definitions:

Differential Pinions

Small gears within a differential that engage with the ring gear to allow for the difference in wheel speed on a vehicle when turning.

Spider

A component within a differential of a vehicle that allows for the distribution of power to the wheels, enabling them to rotate at different speeds.

Hypoid Gears

Gears in which the gear faces are non-parallel and non-intersecting, allowing for smoother and quieter operation, typically used in automotive rear axles.

EP Rated

Stands for Extreme Pressure Rated, indicating that a lubricant or oil has additives that provide protection under high pressure and load conditions.