Question

Calculate the profit/loss for the seller of the put option when the strike is .36; spot is .34 and premium is .01.

Answer 1

Solution: -

Put option is a type of option contract that owner a right to sell the underlying asset at a fixed price to the writer during the specific period of time. if the buyer of the put option decides to excise the option on or before the expiration date the writer has to buy the underlying asset at the fixed price agreed upon the option. The maximum loss on a put option to the buyer will be the sum of option premium amount and any other money used for buying the option and the maximum profit will be the strike price less any amount paid on acquiring the option.

Profit on put option is .01

EXPLANATION:-

profit or loss on put option can be calculated by the following equation: -

P / L on put option = (Strike Price - Spot Price) - Option Premium

Here,

Strike price = .36

Spot Price = .34

Option Premium = .01

P / L on put option   = (.36 - .34) -.01

  Profit on put option = .02 - .01 = .01