Joe sold a put option on ZZZ Corp.with an exercise price of $40.The option expires tomorrow and ZZZ is currently trading at $28 per share.The option premium was $4 per share.What is Joe's profit or loss per share if the option is exercised tomorrow?
A) - $16
B) - $8
C) $8
D) $16

Question

Quizplus · Accepted Answer

If the option is exercised tomorrow, Joe will have to buy the stock at the exercise price of $40, even though it is currently trading at $28. This means he will have a loss of $12 per share. However, he received a premium of $4 per share when he sold the option, so his net loss per share is $12 - $4 = $8. Therefore, the correct answer is option B.

Joe Sold a Put Option on ZZZ Corp