Strategy

A month ago, you paid a premium of $054 per share to purchase a put option on 100 shares of XYZ Corp with an exercise price of $45 per share The option expires today The current price of XYZ stock is $35 per share

Which of the following is the BEST strategy for you to follow?

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What would be your gain or loss on the transaction, including the premium paid? Ignore commission in your calculation and assume the only alternatives are to exercise the option or not to exercise the option

____

A) Exercise the option and gain $946

B) Exercise the option and gain $1,054

C) Exercise the option and gain $4,554

D) Do not exercise the option and lose $54

You are given one-year stock options with an exercise price of $30 The current stock price is $30, so the options are at-the-money Without hedging, the stock price at year-end will either be $28 or $38 with equal probability Hedging shrinks the range of prices between $30 and $36 Find the difference in expected cash flow under the two scenarios

____

A) $1

B) $4

C) $10

D) $6

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