Holds his position until maturity of the options

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Reference no: EM131520651

1. A trader creates a bear spread on a stock by buying one 6-month $40-strike European put option at $5 and selling one 6-month $35-strike European put option at $3. What is the trader’s profit if he holds his position until maturity of the options and the stock price is $37 then?

A. -$3.00

B. -$1.00

C. $0

D. $1.00

E. $3.00

2. An option investor believes that the stock price of a company will have a big jump in the next 3 months. But he is uncertain about the direction of the jump. Which of following strategies should the investor take to profit from his belief?

A. Sell a straddle

B. Sell a strangle

C. Buy a butterfly spread

D. Buy a straddle

E. Buy a bull spread

Reference no: EM131520651

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