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A day trader buys an option on a stock that will return $150 profit if the stock goes up today and lose $650 if it goes down. Complete parts a and b below given that the trader thinks there is a 70 % chance that the stock will go up.
a) What is her expected value of the option's profit?
b) What do you think of this option?

Respuesta :

abiolataiwo2015

Answer:

A.-90

B.What I think of the option is that it will be extremely risky reason been that her expected value was a loss in (a).

Explanation:

Option on stock $150

Loss$650

Percentage 70 %

A.

150*.70= $105

100%-70%

=30%

-650*.30

= -195

$105 + (-195)

= -90

Therefore the expected value of the option's is losing 90

b.

What I think of the option is that it will be extremely risky reason been that her expected value was a loss in (a).