Steve bought 300 shares at a price of $20 per share. The price then went up to $33 per share so Steve decided to hedge his position by purchasing 3 puts at a cost of $120 each. The puts have an exercise price of 30. One week prior to the expiration of the puts, the price was at $22 per share. If Steve closed out all of his positions at that time, he would have earned a net profit of

Question

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Steve's profit from the shares is ($33 - $20) * 300 = $3,900. The puts are worthless since the market price ($22) is below the exercise price ($30), so he loses $120 * 3 = $360 on the puts. Net profit is $3,900 - $360 = $3,540. However, since the market price is $22, he would sell the shares at $22, not $33, resulting in a loss of ($33 - $22) * 300 = $3,300. Therefore, the net profit is $3,900 - $3,300 - $360 = $240.

Steve Bought 300 Shares at a Price of $20 Per