You purchased a put with a strike price of $37.5 and an option premium of $.45. You simultaneously bought the stock at a price of $36 a share. What is your profit per share on these transactions if the stock price at expiration is $33.50 a share?

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Quizplus · Accepted Answer

The profit from the put option is calculated by taking the difference between the strike price ($37.5) and the stock price at expiration ($33.50), which equals $4. Subtract the option premium of $.45 from this amount to get $3.55. Since you bought the stock at $36 and it's now worth $33.50, you have a loss of $2.50 on the stock itself. The net profit is the gain from the put option ($3.55) minus the loss on the stock ($2.50), which equals $1.05 per share.

You Purchased a Put with a Strike Price of $37