The Common Stock of the Avalon Corporation Has Been Trading

question 40

Multiple Choice

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
Suppose you write a strap and the stock price winds up to be $42 at contract expiration. What was your net profit on the strap?

• A) $200
• B) $300
• C) $700
• D) $400

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Definitions:

Apical Meristem

A growth region in plants located at the tips of roots and shoots where cells divide, leading to growth.

Vascular Cambium

In plants, lateral meristem that produces secondary phloem and secondary xylem.

Cork Cambium

Lateral meristem that produces cork.

Covered

Enclosed or protected by something, preventing direct exposure.