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A trader sells a European call on a share for $3. The strike price is $40. (1) Under what circumstances does the trader make a

A trader sells a European call on a share for $3. The strike price is $40.

(1) Under what circumstances does the trader make a profit?

(2) Under what circumstances will the option be exercised?

(3) Draw a diagram showing the variation of the traders profit with the stock price at the maturity of the option.

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