Day trading An option to buy a stock is priced at $200. If the stock closes above 30 on May 15, the option will be worth $1000. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth $200. A trader thinks there is a 50% chance that the stock will close in the 2030 range, a 20% chance that it will close above 30, and a 30% chance that it will fall below 20 on May 15. a) Should she buy the stock option? b) How much does she expect to gain? c) What is the standard deviation of her gain?

STAT 110 – Notes for Week of 9/20/16 Chapter 11 Continued o Stemplot: essentially a histogram turned on its side. It shows the exact values of a distribution. It is used for smaller distributions, since all of the values need to be listed. Also known as a stem-and-leaf plot. o Each observation is separated into a stem (all of the digits of a value except the last digit) and a leaf (the last digit of a value). o There is a line between each stem and the leaf; write each leaf to the right of each stem. For example, if you had the values 40, 42, 43, and 45, the stemplot would say: 4 | 0 2 3 5 . o You also use a stemplot to determine whether a distribution is skew