Question

Suppose a put option has X=144 and Premium=0. As a seller of the put, what is the minimum profit?

Answer 1

A Put option which is having a strike price of 144. By seller we mean Put option writer or Short put denoted by ( P^- ). Put option gets lapsed when the share price exceeds the strike price and is only exercised when the share price is less than strike price. The option writer gets premium from the put option purchaser, however in the present case the premium amount is zero. The maximum profit which a put option seller enjoys is the premium received.

Let us understand with the help of an example.

S_T ( share price) = 140

X = 144

Premium =0

The above put option will exercise and the put option seller has the obligation to buy at X=144 when the market price of the share prevails to be 140. So the amount of loss in this ques will be 4 per option, however if the share price was greater than strike price the put option would have lapsed and there would be no profit or no loss.

Therefore the Minimum profit when the premium received is zero is also zero. The option writer enjoys the premium received only & in this question there is no premium, so when the put option will exercise the option seller will have the obligation to buy the share at the strike price when the share market price will actually prevail at lesser price in the market.