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You just sold three contracts of puts with exercise price of $25.14. You received a premium...

You just sold three contracts of puts with exercise price of $25.14. You received a premium of $1.05 per options. The current stock price is $24.99. What is your break even stock price?

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Answer #1

Whenever an investor sells a put, he is bullish on the stock (believes that the stock price will rise). But, If the stock price begins to fall, the investor may face a loss. In order for the investor to breakeven on the transaction, the stock price may fall by the amount of the premium they received for the option. At expiration the investor will breakeven at the following point:

Breakeven = Strike Price – Premium

So, in this question,

Breakeven point = $25.14 - $1.05 = $24.09 --> Per share breakeven point.

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