Arthur owns 100 shares of Chevron (CVX), which he purchased 6
months ago for $75.00 per share. CVX is currently trading at
$110.00, but Arthur is reluctant to sell (for tax reasons). Arthur
really wants to lock in his current level of profit for at least
six months, so he purchases a put option on CVX with a strike price
of $100.00. Arthur pays a premium of only $1.00. If the price of
CVX drops to $80.00 per share, which of the following is most
correct about Arthur's total gains and losses?
Arthur will lose a total of $20.00.
Arthur will lose a total of $2,000.00.
Arthur will lose $30 per share on the stock but will
gain at least $19 per share on the put option.
Arthur will be forced to sell his shares of
CVX.