Explanation:
Let's analyze both types of lookback options:
$35$50$50 - $35) = $15$40)$55$40$55 - $40) = $15Therefore:
$15 (Option A is correct)$15 (Option D is also correct)However, since the question asks "Which of the following statements is correct?" and typically expects one answer, Option A is the most straightforward correct statement about Trader A's payoff.
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Trader A purchased a 3-month floating lookback call option on ABA stock three months ago. Trader B purchased a 3-month fixed lookback call option on the same stock during the same time period as Trader A. ABA stock finished at $50 at the end of the three-month option term, and the initial strike price was equal to $40. The minimum stock price during the life of the option was $35, and the maximum stock price was $55. Which of the following statements is correct?
A
Trader A's payoff is $15.
B
Trader B's payoff is $10.
C
Trader A's payoff is $20.
D
Trader B's payoff is $15.
E
Trader A's payoff is $10.
F
Trader B's payoff is $5.
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