Question

You sold eight put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10. Today, the option expires and the underlying stock is selling for $34.30 a share. Ignoring trading costs and taxes, what is your total profit or loss on this investment?

Also, explain what the 32.50 exercise price and 34.30 selling price do to profit/loss.

Answer 1

Put option is the right to sell a specified security at a specified price on a future date

Exercise Price is the price at which security can be sold

and selling price is the market price on the date of maturity
Since Market price is higher than the strike price, the option will NOT be exercised.

Loss is equal to the amount of premium paid

i.e. $1.10

hence, -$1.10 is the answer