Question

You are short 2 contracts of 2-yr Amazon (AMZN) put option with a strike price (K) of $2,000. What will be your payoff at expiry f the AMZN price at expiry (S_T) is $1,500?

You are short 2 contracts of 2-yr Amazon (AMZN) put option with a strike price (K) of $2,000. What will be your payoff at expiry f the AMZN price at expiry (S_T) is $2,500?

You are short 2 contracts of 2-yr Amazon (AMZN) put option with a strike price (K) of $2,000. What will be your payoff at expiry f the AMZN price at expiry (S_T) is $2,000?

You are short 2 contracts of 2-yr Amazon (AMZN) put option with a strike price (K) of $2,000. What will be your payoff at expiry f the AMZN price at expiry (S_T) is $1,000?

You are short 2 contracts of 2-yr Amazon (AMZN) put option with a strike price (K) of $2,000. What will be your payoff at expiry f the AMZN price at expiry (S_T) is $3,000?

Answer 1

Put option is exercised when the Spot < Strike

The payoff is calculated as follows: Payoff for short = number of options x (Spot - Strike)

• When Spot = 1500, Payoff for short = 2 x (1500-2000) = -1000
• When Spot = 2500, Payoff for short = 0 as option will not be exercised
• When Spot = 2000, Payoff for short = 2 x (2000-2000) = 0
• When Spot = 1000, Payoff for short = 2 x (1000-2000) = -2000
• When Spot = 3000, Payoff for short = 0 as option will not be exercised