The price of a stock on October 1st is $48. A trader sells a put option...

The price of a stock on October 1st is $48. A trader sells a put option contract (comprised of 200 shares) with a strike price of $40 when the option premium is $2/share. The put option is exercised when the stock price is $39. What is the trader’s net profit or loss?

Solutions

Expert Solution

Since the put option is sold, the upfront cash received by the trader = 200*2 = $400

Since the final stock price is lesser than the strike price, there is a loss to the trader (since he/she has short put)

Loss due to negative payoff = 200*(40-39) = $200

Net profit to trader = $400-$200

Net profit to trader = $200

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts...

The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts (each contract of 100) on the stock with a strike price (K) of $78 when the option price (c) is $5. The options are exercised when the stock price (S1) is $74. What is the trader’s net profit or loss? Solve in following 4 steps. a) Option profit = K – S0 ___________________________________________________ b) Trader’s gain per option = c – (K – S0)...

Suppose an investor sells (writes) a put option. What will happen if the stock price on...

Suppose an investor sells (writes) a put option. What will happen if the stock price on the exercise date exceeds the exercise price? answer choices a.The seller will need to deliver stock to the owner of the option. b.The seller will be obliged to buy stock from the owner of the option. c.The owner will not exercise his option. d.The option will extend for nine more months.

Assume that the stock price is $56, call option price is $9, the put option price...

Assume that the stock price is $56, call option price is $9, the put option price is $5, risk-free rate is 5%, the maturity of both options is 1 year , and the strike price of both options is 58. An investor can __the put option, ___the call option, ___the stock, and ______ to explore the arbitrage opportunity. A. sell, buy, short-sell, lend B. buy, sell, buy, borrow C. sell, buy, short-sell, borrow D. buy, sell, buy, lend

A trader buys a put on a stock having a certain strike price and buys a...

A trader buys a put on a stock having a certain strike price and buys a put on the same stock having a higher strike price. She also writes (sells) two puts having a strike price in the middle of the other two strike prices. a. Illustrate the resulting payoff pattern (profits for different possible stock prices at the expiration date) this position will give the trader. Explain. b. If you didn’t include the answer to this question...

The price of a stock is $60. The price of a one-year European put option on...

The price of a stock is $60. The price of a one-year European put option on the stock with a strike price of $45 is quoted as $10.5 and the price of a one-year European call option on the stock with a strike price of $75 is quoted as $7.5. Suppose that an investor buys 100 shares of stock, shorts 100 shares of call options, and buys 100 shares of put options. (a) Show the profit (loss) table for the...

The price of a stock is $40. The price of a one-year European put option on...

The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. Construct a payoff and profit/loss table

A trader buys 200 put options on a stock with a strike price of $100 when...

A trader buys 200 put options on a stock with a strike price of $100 when the option price is $3 and the stock price is $102. The trader holds the options to the maturity date when the stock price is $107. What is the trader’s net profit or loss?

A European call option and put option on a stock both have a strike price of...

A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) describe the meaning of “put-call parity”. [2 marks] (b) Check whether the...

A European call option and put option on a stock both have a strike price of...

A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) In your own words, describe the meaning of “put-call parity”. (b) Check...

You wrote(sold short) 1 put option when the put option price was $2, the underlying stock...

You wrote(sold short) 1 put option when the put option price was $2, the underlying stock price was $50, and the delta of the put option was -0.65. To achieve delta neutrality, you shorted some shares of the underlying stock. Please fill in the blanks in the following table. Please show calculations. Week Stock price Put option price per share Delta Number of additional shares shorted Proceeds from short selling additional shares 0 50.00 2 -0.65 1 48.12 3.6 -0.80...

Subjects