Reference no: EM132652839
The stock price of Lotus is currently $220 and the call option with strike price of $220 is $10. A trader purchases 100 shares of Lotus stock and short 1 contract of call options with strike price of $220. As a financial analyst at Citibank, you want to answers the following two questions:
a. What is the maximum potential loss for the trader?
b. When the stock price is $240 and the call is exercised, what is the trader's net profit?
Please choose all correct answers. Please also note that each incorrect answer will reduce the score by 10%.
1. When the stock price is $240 and the call is exercised, the trader's net profit is $1000
2. The maximum potential loss for the trader is $21000
3. When the stock price is $240 and the call is exercised, the trader's net profit is $1100
4. The maximum potential loss for the trader is $22000
5. When the stock price is $240 and the call is exercised, the trader's net profit is $1300
6. The maximum potential loss for the trader is $23000
7. When the stock price is $240 and the call is exercised, the trader's net profit is $1200
8. The maximum potential loss for the trader is $20,000