You sold a put contract on EDF stock at an option price of $.25 and an exercise price of $22.50.The option expires today when EDF stock is selling for $21.70 a share.Ignoring transaction costs and taxes,what is your total profit on this investment?
A)$105
B)−$55
C)−$25
D)$55
E)$0

Question

Quizplus · Accepted Answer

Since the stock price is below the exercise price, the put option is in the money. Therefore, you must buy the stock at $22.50 and sell it at the market price of $21.70, resulting in a loss of $0.80 per share. Since one contract is for 100 shares, the loss per contract is $80. However, you received a premium of $0.25 per share, so the net loss per share is $0.55. Therefore, the total loss on the investment is $55.

You Sold a Put Contract on EDF Stock at an Option