Question
An option to buy a stock is priced at $300. If the stock closes above 30...
An option to buy a stock is priced at $300. If the stock closes above 30 on May 15, the option will be worth $900. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth $300. A trader thinks there is a 60% chance that the stock will close in the 20-30 range, a 30% chance that it will close above 30, and a 10% chance that it will fall below 20 on May 15.
Complete parts
. a) How much does she expect to gain? $ nothing (Round to the nearest dollar as needed.)
b) what is the standard dev of her gain?
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Answer #1
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