Question

You write one MBI July 120 put contract (equaling 100 shares) for a premium of $5. The option is held until the expiration date, when MBI stock sells for $123 per share. You will realize a ______ on the investment.

Multiple Choice

• $300 loss

• $300 profit

• $500 profit

• $800 profit

Answer 1

The profit of a written put option = premium paid (If the price of underlying stock at expiry is higher than the exercise price of the put option).

In this case, the price of underlying stock at expiry ($123) is higher than the exercise price of the put option ($120).

Profit = $5 per share

total profit = profit per share * number of share per contract

total profit = $5 * 100 = $500