Suppose you believe that Du Pont's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $83.00 per share. If you bought a 100-share contract for $510.25 and Du Pont's stock price actually dropped to $63.00, you would make

Question

Quizplus · Accepted Answer

To calculate the profit, we need to take into account the premium paid for the put option and the difference between the strike price and the stock price.

Premium paid for the put option = $510.25

Strike price = $83.00

Stock price = $63.00

Difference between strike price and stock price = $83.00 - $63.00 = $20.00

Therefore, the profit would be: $20.00 x 100 - $510.25 = $1,489.75

Option C is the correct answer.

Suppose You Believe That Du Pont's Stock Price Is Going