Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a three-month Johnson Walker put option with an exercise price of $105.00 for $20.00. What is his dollar gain if the stock is selling for $80.00 per share at expiration?
A) $200 loss
B) $700 loss
C) $200 gain
D) $700 gain
E) $900 gain

Question

Quizplus · Accepted Answer

The correct answer is A because the stock price is below the exercise price of the put option, so the put option is in-the-money. Tom can exercise the put option and sell the stock for $105.00 per share, resulting in a gain of $20.00 per share. Since he bought 100 shares, his total gain is $20.00 x 100 = $200.00.

Tom Gettback Buys 100 Shares of Johnson Walker Stock for $87.00