Stock market. A day trader buys an option on a stock that will return $100 profit if the stock goes up today and loses $200 if it goes down. If the trader thinks there is a 75% chance that the stock...

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Stock market. A day trader buys an option on a stock that will return $100 profit if the stock goes up today and loses $200 if it goes down. If the trader thinks there is a 75% chance that the stock will go up, what is his expected value of the option?

Answered Same DayDec 25, 2021

Answer To: Stock market. A day trader buys an option on a stock that will return $100 profit if the stock goes...

Robert answered on Dec 25 2021

123 Votes

x P (x) xP (x)
100 0.75 75
−200 0.25 −50
Total
∑
P (x)
∑
xP (x)
= 1 = 25
Expected Value or Mean = µ = E(X) =
∑
xP (x) = 25
Expected Value or Mean = 25
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Stock market. A day trader buys an option on a stock that will return $100 profit if the stock goes up today and loses $200 if it goes down. If the trader thinks there is a 75% chance that the stock...

Answer To: Stock market. A day trader buys an option on a stock that will return $100 profit if the stock goes...

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