1. What is your profit or loss under the following circumstances when the stock price rises? You buy a stock at $15 and simultaneously buy a put. The strike price on the put is $12, and you pay a $5 premium. The stock price rises to $16.
A. $5 loss C. $2 profit B. $4 loss D. $3 profit
2. What is your loss in the following situation? You write a naked put when the stock price is $50. The strike price is $55, and the stock price drops to $40. Assume the option is near expiration and the market doesn’t assign any additional value to the option’s intrinsic value.
A. $10 C. $20 B. $15 D. $35