Question

1. You are the buyer of a put option which has a put premium of $2.30. The strike price is $83 and the underlying stock price is $82.50. What is your profit or loss?

a. Loss $230

b. Gain $50

c. Gain $230

d. Loss $180

e. None of the above.

2. You are the seller of a put option. The put premium is $5.50 and the exercise price is $105. If the underlying stock price is $110, what is your net gain or loss?

a. Gain $50

b. Loss $50

c. Gain $550

d. Loss $550

e. None of the above.

Answer 1

Ans 1) d. Loss $180

Net Profit = (Strike Price - Underlying price - Put premium) * 100

                = (83 - 82.50 - 2.30) * 100

                = -180

Ans 2) c. Gain $550

Profit = Put premium received * 100

          = 5.50 * 100

           = $ 550