Cara wrote a put option contract on EZ stock with an exercise price of $40 per share and an option price of $.65 per share. Today, the contracts expire and the stock is selling for $34.30 a share. What is the net profit on this investment? Ignore trading costs and taxes.

Question

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Cara sold the put option for $0.65 per share, earning $65 for 100 shares. The stock price is $34.30, below the exercise price of $40, so the option is exercised. She buys the stock at $34.30 and sells it at $40, losing $5.70 per share. Total loss is $570 for 100 shares. Net profit is $65 - $570 = -$505.

Cara Wrote a Put Option Contract on EZ Stock with an Exercise