Three months ago, you purchased a put option on WXX with a strike price of £60 and an option price of £.60.The option expires today when the value of WXX is £62.50.Ignoring trading costs and
Taxes, what is your total proﬁt or loss on your investment?

Question

Quizplus · Accepted Answer

Since the option was a put option, you would exercise it if the value of WXX was below the strike price of £60. However, since the value of WXX is actually £62.50, you would not exercise the option and it would expire worthless. Therefore, your total loss would be just the initial option price of £0.60. Thus, the total profit or loss on the investment is -£0.60 or -£60.

Three Months Ago, You Purchased a Put Option on WXX