The stock price of BAC is currently $120 and a put option with strike price of $120 is $5. A trader goes long 300 shares of BAC stock and long 3 contracts of the put options. a. What is the maximum potential loss for the trader ? b. When the stock price is $140, what is the trader’s net profit

The stock price of BAC is currently $120 and a put option with strike price of $120 is $5. A trader goes long 300 shares of BAC stock and long 3 contracts of the put options. a. What is the maximum potential loss for the trader ? b. When the stock price is $140, what is the trader’s net profit

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 2P

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Question

The stock price of BAC is currently $120 and a put option with strike price of $120 is $5. A trader goes long 300 shares of BAC stock and long 3 contracts of the put options.

a. What is the maximum potential loss for the trader ?

b. When the stock price is $140, what is the trader’s net profit

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