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Which of the following statements for puts at expiration are inaccurate? A. The put buyer’s maximum...

Which of the following statements for puts at expiration are inaccurate?

A. The put buyer’s maximum loss is the put option’s premium.

B. The maximum loss to the writer of a put is the strike price less the premium.

C. The put holder will not exercise the option whenever exercising the option incurs loss.

D. All of the above options are inaccurate.

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Answer #1

Put Option is the right to sell the underlying asset at a specified price on a future date

The Option is exercisable at the option of put buyer and he pays a premium for it to the option seller

Maximum Loss to Put buyer is the premium paid

Maximum loss to put seller = Strike price - Premium received

The put buyer will not exercise whenever the market price is higher than the strike price as it is better to sell in the market

Premium has already been paid and is irrelevant at maturity for the purpose of this decision.

Hence, the answer is C. C is inaccurate as it will be exercised even if the loss is minimised when the strike price is higher than the market price but not high enough to cover premium

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