Tunerecord Unit Co. stock is currently trading at $24. There are two types of options available on the stock. Call options with a strike price of $24, which expire next year, are currently trading at $9.6. Put options with a strike price of $24, which expire next year, are currently trading for $2.4. Berniss invests $144 in common stock. Jewel invests $144 in the call options. Reynardo invests $144 in the put options. At the end of one year the price of Tunerecord Unit stock is $21.6. Who made the least losses from their investment?

Question

Quizplus · Accepted Answer

Berniss invested in the common stock, so their investment is worth $144*(21.6/24) = $129.60, resulting in a loss of $14.40.
Jewel invested in call options with a strike price of $24, which are now out-of-the-money, so their investment is worthless and they have lost the entire $144.
Reynardo invested in put options with a strike price of $24, which are now in-the-money, so they can sell the stock for $24 instead of the current market price of $21.6. This means they can sell the stock for $24 and make a profit of $2.4 per share, which is the premium they paid for the put option. Since they invested $144, they can sell 60 shares of stock at the strike price of $24, resulting in a profit of $144. Therefore, Reynardo made a profit while Berniss and Jewel both lost money. Therefore, the least loss was incurred by Reynardo.