You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realise a ________ on the investment.
A)$300 profit
B)$300 loss
C)$500 loss
D)$200 profit

Question

Quizplus · Accepted Answer

Since the stock price at expiration is higher than the strike price of the put option, the option is out of the money and worthless. Therefore, the investor loses the premium paid for the option, which is $3 per share. Since one options contract covers 100 shares, the total loss is $300 (100 shares x $3 per share).

You Purchase One IBM July 120 Put Contract for a Premium