Jason purchased a six- month put on ABC shares at a cost of $100. The strike price was $15. At what market price does Jason just break- even on this investment? Ignore transaction costs and taxes.

Question

Quizplus · Accepted Answer

To break even, the market price must be such that the profit from exercising the put equals the cost of the put. The strike price is $15, and the cost of the put is $100. Therefore, Jason breaks even when the market price is $15 - $1 = $14.

Jason Purchased a Six- Month Put on ABC Shares at a Cost