Question

You sold a put contract on EDF stock at an option price of $.50. The option had an exercise price of $21. The option was exercised. Today, EDF stock is selling for $20 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.

Answer 1

Put contract is sold at $ 0.50

The person who has bought the option now has a right to sell the stock at an exercise price of $ 21.

The option was exercised.

The person sold the stock at $ 21.

Since the current price of stock is lower than the exercise price he has earned a profit.

Hence he has earned a total profit of = $21 -$20 -$0.50 = $0.50

If we had not sold the contract and exercised it ourself we would have earned a total profit of $21 - $20 = $1

So we are currently at a LOSS of $1 - $0.5

Here $ 0.5 is the existing profit made by us.