You purchase one IBM July 120 put contract for a premium of $3.You hold the option until the expiration date when IBM stock sells for $123 per share.You will realize a ______ on the investment.
A) $300 profit
B) $300 loss
C) $500 loss
D) $200 profit

Question

Quizplus · Accepted Answer

As the stock price at expiration is higher than the strike price (which is $120 in this case), the put option is out of the money. Therefore, it will expire worthless, and the investor will lose the premium paid for it, which is $3. Hence, the investor will realize a $300 loss on the investment.

You Purchase One IBM July 120 Put Contract for a Premium