You write 5 put option contracts with a premium of $4.85 and a strike price of $80. What is your profit if the stock price at expiration is $78.13?
A) $1,490
B) $935
C) $3,860
D) -$935
E) -$1,620

Question

Quizplus · Accepted Answer

Since the stock price at expiration ($78.13) is below the strike price ($80), the put options will be exercised. For each contract, the writer (you) will have to buy the stock at the strike price, resulting in a loss of $1.87 per share ($80 - $78.13). However, you initially received a premium of $4.85 per share. The net profit per share is therefore $4.85 - $1.87 = $2.98. Since each contract covers 100 shares, the profit per contract is $2.98 * 100 = $298. For 5 contracts, the total profit is $298 * 5 = $1,490.

You Write 5 Put Option Contracts with a Premium of $4.85