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The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the opti...

The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4. The options are exercised when the stock price is $69. What is the trader’s net profit or loss?

Please show work! I know the answer is “gain of $1,500”

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Answer #1

Profit/Loss for trader = -No. of options * [{Max(Strike Price - Stock Price),0} - option cost]

= -5 * 100 * [{Max($70 - $69),0} - $4]

= -500 * [$1 - $4] = -500 * -$3 = $1,500

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