You short a put option for a price of $2.5 per share with an exercise price...

Question

Question

You short a put option for a price of $2.5 per share with an exercise price...

You short a put option for a price of $2.5 per share with an exercise price of $150. And the current underlying stock price is $154. What is the break-even stock price for your investment?

Please provide steps of calculation.

the answer is not 147.5. please do not copy and paste a wrong answer.

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

Shorting a put option means you have the obligation to buy the stock @ $150.

you have recieved the premium of $ 2.5, therefore there is no investment.

therefore there is no break even point ( = 0 ) in terms of investment.

The opposite party has the right to sell the share @ $150 , he will exercise his right only if the market price is below $150 otherwise he will sell the stock in market at above $150.

However you will get loss if the market price goes below $147.5 (150-2.5) i.e.,there will be an outlay of funds.

thank you :)

Add a comment

Answer 2

Similar Homework Help Questions

You short a put option for a price of $2.5 per share with an exercise price...

You short a put option for a price of $2.5 per share with an exercise price of $150. And the current underlying stock price is $154. What is the break-even stock price for your investment?
You short a put option for a price of $2.5 per share with an excercise price...

You short a put option for a price of $2.5 per share with an excercise price of $150. And the current underlying stock price is $154. What is the break-even stock price for your investment?
You sold eight put option contracts on PLT stock with an exercise price of $32.50 and...

You sold eight put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment? Also, explain what the 32.50 exercise price and 34.30 selling price do to profit/loss.

1. Jim sold 20 put option contracts on XYZ stock with an exercise price of $35.5 and an option price of $2.30. Toda...

1. Jim sold 20 put option contracts on XYZ stock with an exercise price of $35.5 and an option price of $2.30. Today, the option expires and the underlying stock is selling for $34.30 a share. What is your total profit or loss on this investment? 2 ABC CO just paid a $1.20 annual dividend. The company has a policy whereby the dividend increases by 2.5 % annually. You would like to purchase 100 shares of stock in this firm...
1. Jim sold 20 put option contracts on XYZ stock with an exercise price of $35.5 and an option price of $2.30. Toda...

1. Jim sold 20 put option contracts on XYZ stock with an exercise price of $35.5 and an option price of $2.30. Today, the option expires and the underlying stock is selling for $34.30 a share. What is your total profit or loss on this investment? 2 ABC CO just paid a $1.20 annual dividend. The company has a policy whereby the dividend increases by 2.5 % annually. You would like to purchase 100 shares of stock in this firm...
Cara wrote a put option contract on EZ stock with an exercise price of $40 per share and an optio...

Cara wrote a put option contract on EZ stock with an exercise price of $40 per share and an option price of $.65 per share. Today, the contracts expire and the stock is selling for $34.30 a share. What is the net profit on this investment? Ignore trading costs and taxes. Multiple Choice $63.50 −$505.00 $635.00 $50.50 −$635.00

EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a...

EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a Treasury security having the same maturity as the option is.9800 (dollars per face). a. What would you expect the price of the underlying security to be? b. Illustrate with a graph the profit or payoff profile that would result from a "covered call" (write...
You are attempting to value a put option with an exercise price of $100 and one...

You are attempting to value a put option with an exercise price of $100 and one year to expiration. The underlying stock pays no dividends, its current price is $100, and you believe it has a 50% chance of increasing to $120 and a 50% chance of decreasing to $80. The risk-free rate of interest is 10%. Calculate the value of a put option with exercise price $100.
For all call and put options, answer questions based on per share price, per share premium,...

For all call and put options, answer questions based on per share price, per share premium, and etc. Please be aware that the first question is asking from the buyer of the call option's point of view and the second question is asking from the seller of the put option's point of view. Answering the questions from the wrong perspective will not be granted most of credits. 2. The market price for Alibaba Group Holding Limited. (Ticker: BABA) was $198.74...

13. The premium on a pound put option is $.03 per unit. The exercise price is...

13. The premium on a pound put option is $.03 per unit. The exercise price is s1.60. The break-even point for the buyer and seller is? (Assume put option are speculators.) zero transactions costs and that the buyer and seller of the 14. You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate...

You short a put option for a price of $2.5 per share with an exercise price...

Homework Answers

Add Answer to:
You short a put option for a price of $2.5 per share with an exercise price...

Post as a guest

Earn Coins