Question

You purchase 15 put option contracts on ABC stock. The strike price is $22, and the premium is $0.5. The contract size is 100 shares.

1. If the stock is selling for $20 per share at expiration, what are your put options worth?

2. What is your net profit?
3. What if the stock were selling for $21? $22?

need full steps, thx!!!

Answer 1

1.

A put option increases in value, meaning the premium rises, as the price of the underlying stock decreases.

15 options were purchased, each option has a contract size of 100 shares.

Below calculation are for 1 put option.

Current Value of Shares (you pay)	$2,000
Current Exercise Price (you receive)	$2,200
Gross Value of Option	$200
Less Purchase Price of Option	$50
Current Value of Option	$150
Net Value Per Share	$2
Current Option Status	in the money.

So, put option current value is 15 x $150= $2250

2.

Your put option is currently 'in the money'. If you were to exercise your option today, you might expect a net gain of $2250.

3.

for $21

Current Value of Shares (you pay)	$2,100
Current Exercise Price (you receive)	$2,200
Gross Value of Option	$100
Less Purchase Price of Option	$50
Current Value of Option	$50
Net Value Per Share	$0
Current Option Status	in the money.

for 15 such put options 15 X $50 = $750

For $22

Current Value of Shares (you pay)	$2,200
Current Exercise Price (you receive)	$2,200
Gross Value of Option	$0
Less Purchase Price of Option	$50
Current Value of Option	-50
Net Value Per Share	-0
Current Option Status	out of the money

Your put option is currently 'out of the money'. If you were to exercise your option today, you might expect a net loss of $50.

for 15 such put options 15 X 50= $750 (loss)