Question

A speculator may write a put option on stock with an exercise price of $15 and earn a $3 premium only if he thought Multiple Choice the stock price would stay above $12. the stock volatility would increase. the stock price would fall below $18. the stock price would rise above $18 or fall below $12. the stock price would stay above $15.

Answer 1

Answer:

the stock price would stay above $12.

Explanation:

Answer 2

Answer:

the stock price would stay above $12.

Explanation:

A put option will allow the owner of the option the right to sell a stock at a certain price. The put can be exercised or not, depending on how the price of the stocks varies. In this case, in order for the option to be exercised and make roughly a $3 profit per stock, the price of the stock must remain above $12. If the stock price rises over $15, then the option would not be exercised since the investor would lose money. If the price of the stocks lowers below $12, the profit made by the investor would be even larger, e.g. if the price is $10 and the investor sells at $15, the profit is $5 per stock.

The put option premium is the difference between the selling price of the stock and the exercise price. Premiums are never negative, since no one will exercise the put option if the price increases.