Answer:
The net loss of the trader amounts to $1,000, which means the correct option is A
Explanation:
The payoff is computed as:
Payoff = Strike price - Option's Stock price
where
Strike price is $90
Option's Stock Price is $85
Putting the values above:
Payoff = $90 - $85
= $5 per option
The trader bought 200 options, so the payoff would be:
Payoff = Options × Price per option
= 200 × $5
= $1,000
And the option cost would be:
Option cost = Options × Option Price
= 200 × $10
= $2,000
So, there computing net loss or gain as:
Net loss or gain = Payoff - Option cost
= $1,000 - $2,000
= $1,000 ( net loss)
Therefore, the correct option is A
