Question

You sold ten put option contracts on PLT stock with an exercise price of $31.20 and an option price of $1.20. Today, the option expires and the underlying stock is selling for $33 a share. Ignoring trading costs and taxes, what is your total profit on this investment?

a. −$3,300

b. −$1,200

c. $120

d. $1,200

e. $3,300

Answer 1

The seller of put option makes profit if the stock price > exercise price, since the option expires worthless and the seller makes profit on the premium earned

Here, Stock price > exercise price

Number of shares in each lot = 100

Number of lots = 10

Option premium = $1.20

Hence, profit = 10*100*1.20 = $1,200