You sold a put contract on EDF stock at an option price of $.50. The option had an exercise price of $21. The option was exercised. Today,EDF stock is selling for $20 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.
A) -$150
B) -$60
C) -$50
D) $60
E) $150

Question

Quizplus · Accepted Answer

When you sold the put contract at an option price of $.50, you collected a premium of $.50 per share or $50 in total (100 shares x $.50). If the option was exercised, you would have to buy 100 shares of EDF stock at the exercise price of $21 per share, costing you $2,100 in total. However, since the stock is currently trading at $20 per share, you would have a loss of $100 if you sold the stock immediately after buying it. Therefore, your total loss would be $100 (loss on stock) - $50 (premium collected) = -$50.

You Sold a Put Contract on EDF Stock at an Option