Question

On 10 May an investor sells a six-month put option on 1,000 shares of a stock. The current stock price $39 and the exercise price of the put option is $40. The price of the put option is $2.30 per share. At expiration date on 10 November, the stock price is $36.90. The option is cash settled.

(a) What is the cash flow of the investor on 10 May?

(b) What is the payoff on the option on 10 November?

(c) What is the investor’s profit/loss on the option
trade?

Answer #1

On 10 May an investor sells a six-month put option on 1,000
shares of a stock. The current stock price $39 and the exercise
price of the put option is $40. The price of the put option is
$2.30 per share. At expiration date on 10 November, the stock price
is $36.90. The option is cash settled.
(a) What is the cash flow of the investor on 10 May?
(b) What is the payoff on the option on 10 November?...

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