A stock currently trades at $110. June put options on the stock with a strike price of $100 are priced at $5.25. Calculate the dollar return on one put contract.
A) -$525
B) $1000
C) $0
D) -$1000
E) $525

Question

Quizplus · Accepted Answer

To calculate the dollar return on one put contract, we need to subtract the strike price from the current stock price and then subtract the option premium. 
i.e., Dollar return = (Current stock price - Strike price) - Option premium
= ($110 - $100) - $5.25 = $4.75
Therefore, the dollar return on one put contract is $525 (since each contract represents 100 shares, so $4.75 x 100 = $475, plus a $50 commission to buy/sell the contract). 
Hence, the correct choice is A.

A Stock Currently Trades at $110