USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and is considering an Olivia option.

-Refer to Exhibit 14.1. If Bruce buys a March put option with an exercise price of 40, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?
A) $825.00 loss
B) $475.00 loss
C) $350.00 loss
D) $25.00 loss
E) $50.00 gain

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
On the last day of October, Bruce Springsteen is considering the purchase of 100 shares of Olivia Corporation common stock selling at $37 1/2 per share and is considering an Olivia option.
 
-Refer to Exhibit 14.1. If Bruce buys a March put option with an exercise price of 40, what is his dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?
A) $825.00 loss 
B) $475.00 loss 
C) $350.00 loss 
D) $25.00 loss 
E) $50.00 gain

Quizplus · Accepted Answer

Bruce would incur a loss because the stock price (43 1/2) is above the exercise price (40), making the put option worthless. The loss would be the premium paid for the option, which is $475.