You wrote ten put option contracts on JIG stock with a strike price of $40 and an option price of $.40.What is your total profit on this investment if the price of JIG is $41.05 on the option expiration date?
A)$6,450
B)$5,650
C)$400
D)−$5,650
E)−$6,450

Question

Quizplus · Accepted Answer

Since the price of JIG is $41.05 at expiration, which is above the strike price of $40, the put options will expire worthless. This means the writer of the put options (you) gets to keep the entire premium received. The total premium received is the option price ($.40) times the number of contracts (10) times the contract multiplier (usually 100 shares per contract), which equals $400.

You Wrote Ten Put Option Contracts on JIG Stock with a Strike