Steve Bought 300 Shares of Stock at a Price of $20

question 34

Multiple Choice

Steve bought 300 shares of stock at a price of $20 per share. The price of the stock then went up to $33 per share so Steve decided to hedge his position by purchasing 3 puts at a cost of $120 each. The puts have an exercise price of 30. One week prior to the expiration of the puts, the price of the stock was at $22 per share. If Steve closed out all of his positions at that time, he would have earned a net profit of

• A) $200.
• B) $240.
• C) $2,640.
• D) $3,000.

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Definitions:

Sufficient Condition

A condition that, if satisfied, guarantees the occurrence or truth of another condition but isn't necessarily required for the latter's occurrence.

Method of Difference

A scientific research method used to identify the cause-effect relationship between variables by changing one variable at a time while keeping others constant.

Causal Factor

An element or condition that brings about or contributes to producing a particular outcome or effect.

Method of Concomitant Variations

A principle in scientific and philosophic reasoning that suggests a causal relationship between two variables if they vary together consistently.