You own 8 put option contracts on JL Industrial stock. You paid an option premium of $0.80 for a strike price of $42.50. On the option expiration date, the stock was selling for $41.25 a share. What is your percentage return?
A) -100 percent
B) -18.75 percent
C) 11.26 percent
D) 18.75 percent
E) 56.25 percent

Question

Quizplus · Accepted Answer

The intrinsic value of the put option at expiration is $42.50 - $41.25 = $1.25. The profit per option is $1.25 - $0.80 = $0.45. The total profit for 8 contracts (800 shares) is $0.45 * 800 = $360. The initial cost was $0.80 * 800 = $640. The percentage return is ($360 / $640) * 100% = 56.25%.

You Own 8 Put Option Contracts on JL Industrial Stock