Rosalita purchased a put option with a strike price of $40. She paid a total of $140 for the contract. What is the break-even stock price?
A) $38.40
B) $39.60
C) $40.00
D) $41.60
E) $42.80

Question

Quizplus · Accepted Answer

The break-even stock price for a put option is calculated by subtracting the premium paid from the strike price. Here, the strike price is $40, and the premium paid is $140 for 100 shares (since options typically cover 100 shares), which is $1.40 per share. Therefore, the break-even price is $40 - $1.40 = $38.60. However, the closest option is $39.60, indicating a possible error in the provided choices or calculation.

Rosalita Purchased a Put Option with a Strike Price of $40