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In March, a U . S . investor instructs a broker to sell one July put option contract on a stock. The stock price is

In March, a U

.

.

investor instructs a broker to sell one July put option contract on a stock. The stock price is $

42

and the strike price is $

40 .

The option price is $

3 .

Explain what the investor has agreed to

.

Under what circumstances will the trade prove to be profitable? What are the risks?

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