If,for a $1000 premium,you buy a $100,000 put option on bond futures with a strike price of 110,and at the expiration date the price is 114,your ________ is ________.

Question

Quizplus · Accepted Answer

A put option gives the buyer the right, but not the obligation, to sell an underlying asset at a specific price (strike price) on or before a specific date (expiration date). In this case, the buyer paid a $1000 premium to buy a put option on bond futures with a strike price of 110. This means that the buyer can sell bond futures contracts at a price of 110, even if the market price is lower than that.

At the expiration date, if the market price is higher than the strike price of 110, the put option expires worthless, and the buyer loses the premium paid. In this scenario, the market price is 114, which is higher than the strike price. Therefore, the buyer would not exercise the option and would let it expire, resulting in a loss of the $1000 premium paid. Hence, the answer is B.

If,for a $1000 Premium,you Buy a $100,000 Put Option on Bond