A speculator purchases a put option for a premium of $4, with an exercise price of $30. The stock is presently priced at $29 and rises to $32 before the expiration date. What is the stock price at which the speculator would break even?Select one:a. $28b. $34c. $26d. $29e. $32
Question
A speculator purchases a put option for a premium of 30. The stock is presently priced at 32 before the expiration date. What is the stock price at which the speculator would break even?Select one:a. 34c. 29e. $32
Solution 1
The break-even point for a put option buyer is calculated by subtracting the premium paid from the exercise price. In this case, the exercise price is 4.
So, the break-even point would be 4 = $26.
Therefore, the correct answer is c. $26.
Solution 2
The break-even point for a put option buyer is calculated by subtracting the premium paid from the exercise price. In this case, the exercise price is 4.
So, the break-even point would be 4 = $26.
Therefore, the correct answer is c. $26.
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