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
Which type of organization means that there are few or no levels of managers in between the top people who run the company and the employees?
Answers (1)
Winston Company estimates that the factory overhead for the following year will be $1,159,400. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 34,100 hours.
Answers (1)
When bacteria are spread from one food to another, this is called?
Answers (1)
Which one of the following statements regarding financial reports is correct? The balance sheet classifies all assets according to operating, investing, and financing activities.
Answers (2)
Consider the demand for Russian rublesRussian rubles in exchange for British poundsBritish pounds. Which of the following will not increase the foreign currency demand for the rubleruble ? A.
Answers (1)
New Questions in Business
Both Bond Sam and Bond Dave have 6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has four years to maturity, whereas Bond Dave has 19 years to maturity. a.
Answers (1)
What role have public speeches served in ancient societies?
Answers (2)
What is the total annual value of goods and services produced in a country called? A. Gross Domestic Product B. Gross National Product C. Personal Disposable Income D. Gross National Income
Answers (1)
Marketing ethics refers to the moral or ethical dilemmas that might arise in a business setting, according to various moral and ethical principles that might arise in a business setting, and any special duties or obligations that apply to persons
Answers (1)
n a semantic priming task, A. presenting one word interferes with identifying a related word in a lexical decision task. B. presenting one word makes it easier to identify a related word in a lexical decision task. C.
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?