Suppose you have sold a put option on a stock with a strike price of $25 and the current price of the stock is $25. If the stock price at expiration is $30, your payoff will be -$5.

Question

Quizplus · Accepted Answer

If the stock price at expiration is $30, the put option will expire worthless as it would not be beneficial for the holder to exercise the option to sell the stock at $25 when they can sell it in the market for $30. Therefore, as the seller of the put option, you would not have to pay anything, and your payoff would be the premium received for selling the option, not -$5.

Suppose You Have Sold a Put Option on a Stock