Underlying stock price: 45.80 Suppose you bought 10 Glaxo Nov 50 put contracts. Just before the option expires, the stock is selling for $55. What is your net proﬁt (or loss)? Ignore transaction costs.

Question

Underlying stock price: 45.80  Suppose you bought 10 Glaxo Nov 50 put contracts. Just before the option expires, the stock is selling for $55. What is your net proﬁt (or loss)? Ignore transaction costs.

Quizplus · Accepted Answer

Since you bought put contracts, your profit is calculated as:

Maximum [Strike Price - Stock Price at Expiration, 0] x Number of Contracts x 100

The strike price is $50, and the stock price at expiration is $55. Therefore, your profit per contract is:

Maximum [50 - 55, 0] x 100 = $0

Since you bought 10 contracts, your total profit is $0 x 10 contracts = $0.

Therefore, your net loss is the total premium paid for the options, which is:

$900 premium per contract x 10 contracts = $9,000

So your net profit is -$9,000.00.

Underlying Stock Price: 45