You purchased 500 shares of SLG, Inc. stock at a price of $40.20 a share. You then purchased put options on your shares with a strike price of $47.50 and an option premium of $1.90. At expiration, the stock was selling for $48.30 a share. You sold your shares on the option expiration date. What is your net profit or loss your transactions related to SLG, Inc. stock?
A) $2,650
B) $2,250
C) $3,100
D) $3,550
E) $3,700

Question

Quizplus · Accepted Answer

First, let's calculate the cost of purchasing 500 shares of SLG, Inc. stock at $40.20 a share:

500 shares x $40.20 per share = $20,100

Next, let's calculate the cost of purchasing the put option:

500 shares x $1.90 option premium x 1 contract (represents 100 shares) = $950

Therefore, the total cost of the transactions is:

$20,100 (stock purchase) + $950 (option purchase) = $21,050

Now, let's calculate the proceeds from selling the stock at $48.30 a share:

500 shares x $48.30 per share = $24,150

Since the stock price is above the strike price of the put option, the option expired worthless and we do not need to factor in any gains or losses from exercising the option.

Therefore, the net profit from these transactions is:

$24,150 (proceeds from stock sale) - $21,050 (total cost of transactions) = $3,100

The correct answer is C: $3,100.

You Purchased 500 Shares of SLG, Inc