A day trader buys an option on a stock that will return $100 profit if the stock goes up today and lose $400 if it goes down. If the trader thinks there is a 75% chance that the stock will go up, find the standard deviation of the day trader's option value.
Added by George V.
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The expected value is calculated by multiplying the potential outcomes by their respective probabilities and summing them up. Expected value = (Probability of stock going up * Profit if stock goes up) + (Probability of stock going down * Loss if stock goes Show more…
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