You own 100 shares of a stock with a current price of $50 and you also own a put option of 100 shares of the stock with a strike price of $45.What is the minimum value of your portfolio at expiration? Ignore the original cost of the put option for your calculation.

Question

Quizplus · Accepted Answer

At expiration, if the stock price is above $45, the put option will expire worthless and the value of the portfolio will be 100 shares x $50 = $5000. If the stock price is below $45, you can exercise the put option to sell 100 shares at $45, resulting in a portfolio value of 100 shares x $45 + the value of the put option, which would be at least $0. Therefore, the minimum value of the portfolio at expiration is $4500, which corresponds to answer choice B.

You Own 100 Shares of a Stock with a Current