Ask Question
BusinessBusiness
6 October, 16:26

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.

+1
Answers (1)
  1. 6 October, 17:02
    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?
Get 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 there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
The pretax financial income (or loss) figures for Whispering Company are as follows. 2015 $164,000 2016 275,000 2017 86,000 2018 (164,000) 2019 (390,000) 2020 113,000 2021 98,000 Pretax financial income (or loss) and taxable income (loss) were the
Answers (1)
Describe how bargaining may be different in the business and professional setting as opposed to other interpersonal interactions.
Answers (1)
What is the objective of the last step in the ethical decision-making framework? Multiple Choice to brainstorm any alternative courses of action to weigh the various alternatives and choose a course of action to identify the issue to gather facts
Answers (1)
The market for salmon is in equilibrium. A price ceiling, a price floor, and a quota limit in this market would all have what outcome in common? a. Inefficiencies created by a quantity exchanged that is less than the equilibrium quantity. b.
Answers (1)
Suppose a stock sells for $1,200 and pays no dividends. At the end of one year, the stock's price decreases to $1,000. What is the dollar return on an investment in this stock? $200.00 - $0.17 - $200.00
Answers (1)
New Questions in Business
If a tree grew more than 3 feet during the year, how much more likely is it that the tree was at most 50 yards from the river?
Answers (2)
An HP-10BII can solve problems with up to 15 beginning-of-year cash flows when there are no consecutive equal cash flows. True / False.
Answers (1)
Do you think we need to prioritize wants? why
Answers (1)
When the auditors discover an overstatement of accounts payable, they would most likely also expect to find an overstatement of:?
Answers (1)
This year Drake and his son purchased real estate for an investment. The price of the property was $1,200,000, and the title named Drake and his son as joint tenants with the right of survivorship.
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?