You sold ﬁve put option contracts on QLN stock with an exercise price of $45 and an option price of $2.20. Today, the option expires and the underlying stock is selling for $38.65 a share. Ignoring
Trading costs and taxes, what is the total proﬁt or loss on this investment?
A) -$2,075
B) -$415
C) $855
D) $1,100
E) $4,275

Question

Quizplus · Accepted Answer

The total loss is calculated as follows: The put option was sold for $2.20, so the premium received is $2.20 * 100 shares/contract * 5 contracts = $1,100. The stock price is $38.65, which is below the exercise price of $45, so the put option will be exercised. The loss per share is $45 - $38.65 = $6.35. The total loss is $6.35 * 100 shares/contract * 5 contracts = $3,175. The net loss is $3,175 - $1,100 = $2,075.

You Sold ﬁVe Put Option Contracts on QLN Stock with an Exercise