The price of a stock on February 1 is $48.A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2.The options are exercised when the stock price is $39.The trader's net profit or loss is
A) Loss of $800
B) Loss of $200
C) Gain of $200
D) Loss of $900

Question

Quizplus · Accepted Answer

The payoff is 40−39 or $1 per option.For 200 options the payoff is therefore 1×200 or $200.However the premium received by the trader is 2×200 or $400.The trader therefore has a net gain of $200.

The Price of a Stock on February 1 Is $48