Option pay-offs: What is the pay-off for a put option with a strike price of $20 if the price of the underlying share at expiration is $18?

Question

Quizplus · Accepted Answer

The pay-off for a put option is the difference between the strike price and the price of the underlying share at expiration, as long as the difference is positive. In this case, the difference is $20 - $18 = $2, which is positive, so the pay-off is $2. Option holders typically exercise the option if the pay-off is positive, so the best choice is B.

Option Pay-Offs: What Is the Pay-Off for a Put Option