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On November 30, Year 1, Wholesale Foods Company (WFC) buys a put option on the stock of Simmons Enterprises Inc. (SEI). The terms of the
On November 30, Year 1, Wholesale Foods Company (WFC) buys a put option on the stock of Simmons Enterprises Inc. (SEI). The terms of the put option give WFC the right to short 25,000 shares of SEI stock at a price of $45 per share over the next 60 days. In return, WFC pays an upfront $1.50 per share put option premium to the option writer. Assuming that the price of SEI stock drops to $41 on December 15 and WFC exercises the put option, what is the net gain or loss from the put option transaction reported by WFC during the calendar year (1)? O $37,500 loss O $62,500 gain O $100,000 gain O $137,500 gain
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