The price of a stock on February 1 is $124.A trader sells 200 put options on the stock with a strike price of $120 when the option price is $5.The options are exercised when the stock price is $110.The trader's net profit or loss is
A) Gain of $1,000
B) Loss of $2,000
C) Loss of $2,800
D) Loss of $1,000

Question

Quizplus · Accepted Answer

The payoff that must be made on the options is 200×(120−110)or $2000.The amount received for the options is 5×200 or $1000.The net loss is therefore 2000−1000 or $1000.

The Price of a Stock on February 1 Is $124