Question

You are holding a put option to sell 300 shares of XYZ Company by June 30 at a strike price of $31 per share? You paid $245 for these options.

1. If the stock's lowest price prior to June 30 is $33 per share, what gain or loss have you experienced on the option?

2.If the stock price is $28.75 on May 10th and you decide to exercise your option, how much gain did you make on the option?

Answer 1

Information provided
		Amount in $
No of call option		300
Strike price		31
Premium paid		245
Details of Put option
Put option giving the buyer right but not obligation to sell the required shares.
Profit when market price< strike price
Loss when strike price < Market price
In such case option holder will not exercise the Option. Loss = Amount of Premium Paid
Solution
1st case
Lowest price on 30th june		33
As price is higher than the strike price of put option.
Option will not exercised.
Loss= Premiume paid
i.e. loss		245
2nd Case
Price on 10th may	a	28.75
Strike price	b	31
Gain per share option	c=a-b	2.25
No of Option	d	300
Total profit	e=c X d	675
Premium paid	f	245
Net Profit	j=e-f	430

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