Ask Question
BusinessBusiness
20 December, 11:31

A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the option and lose money on the trade. Explain.

+5
Answers (1)
  1. 20 December, 14:37
    0
    The trader exercises the option and loses money on the trade if the stock price is between $30 and $33 at option maturity.

    Explanation:

    A call option is the right to buy an asset at an agreed price on the maturity date. This agreed price is known as the strike price.

    In the given scenario, the strike price is $30. The trader pays an additional $3 for the right to exercise the option, thus paying a total of $33 for the option.

    Now, if the asset price on maturity date is greater than $30, the trader shall exercise the option and buy the asset. This is because the market price of the asset is greater than the price the trader pays for it, resulting in a favorable situation for the trader.

    However, the trader paid a total of $33 for the stock. Hence, the trader shall lose money on the trade as long as the asset price is below $33.

    Therefore, if the asset price upon maturity is between $30 and $33, the trader shall exercise the option but lose money on the trade.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the option and lose money on the trade. ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Demers Inc. reported the following dа ta: Net income $490,000 Depreciation expense 52,000 Gain on disposal of equipment 26,500 Decrease in accounts receivable 32,400 Decrease in accounts payable 12,350 Prepare the Cash Flows from Operating
Answers (1)
Tanner has invested $500 for college. what rate of return must tanner earn for his investment to double in six years
Answers (1)
Kelly is an attorney and also an excellent typist. she can type 120 words per minute, but she charges attorney fees at $100 per hour. todd would like some typing work but can only type 60 words per minute.
Answers (1)
The mean monthly bill for a sample of households in a city is $70, with a standard deviation of $8. Using this data, let us assume that the number of households is 40 a.
Answers (1)
You are forming a new company that delivers food to students across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation.
Answers (1)
New Questions in Business
Which best describes what a central bank uses monetary policy to do? ensure that the government has a balanced budget influence financial institutions globally ensure that the government is sufficiently funded steer the economy away from recession
Answers (2)
Ollie Company experienced the following events during its first-year operations: 1. Acquired $72,000 cash from the issue of common stock. 2. Borrowed $26,000 from the First City Bank. 3. Earned $59,000 of cash revenue. 4.
Answers (1)
Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $118,500 and $125,600, respectively. During the year, actual overhead was $108,000 and actual direct labor cost was $115,800.
Answers (1)
Individuals who pay less of their own health care costs may have an incentive to use health care resources more frequently and to engage in riskier behaviors. The problem is known as: A. asymmetric information. B. adverse selection. C. moral hazard.
Answers (1)
The answer to the question "what really makes the difference between success and failure on a particular job, and according to whom?" determines:
Answers (1)
Home » Business » A trader buys a call option with a strike price of $30 for $3. Does the trader ever exercise the option and lose money on the trade. Explain.
Sign Up Forgot Password?