Question

A Day Trader Buys An Option On A Stock That Will Return $150 Profit If The Stock Goes Up Today And Lose $700 If It Goes Down. If The Trader Thinks There Is A

Answer 1

A. Expected value= -$20

B. Risky

Step-by-step explanation:

A. Computation for the expected value of the option’s profit

Expected value=150*.80= 120

Expected value=-700*(100%-80%)= -140

Expected value=120 + (-140)

Expected value= -$20

Therefore the expected value is -$20

b. Based on the above calculation What I think of this option is that the option has high risk reason been that the expected value resulted in a loss