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15.The price of a stock is $67. A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4. The options are exercised when the stock price is $69. What is the trader’s net profit or loss?

A.Loss of $1,500

B.Loss of $500

C.Gain of $1,500

D.Loss of $1,000

A.Loss of $1,500

B.Loss of $500

C.Gain of $1,500

D.Loss of $1,000

Answer: C

The option payoff is 70−69 = $1. The amount received for the option is $4. The gain is $3 per option. In total 5×100 = 500 options are sold. The total gain is therefore $3 × 500 = $1,500.

The option payoff is 70−69 = $1. The amount received for the option is $4. The gain is $3 per option. In total 5×100 = 500 options are sold. The total gain is therefore $3 × 500 = $1,500.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015