Question

# The price of a stock is \$75. A trader sells 6 put option contracts (each contract...

The price of a stock is \$75. A trader sells 6 put option contracts (each contract of 100) on the stock with a strike price of \$78 when the option price is \$5. The options are exercised when the stock price is \$74. What is the trader’s net profit or loss?
Solve in following 4 steps.
a) Option profit ?
b) Trader’s gain per option ?
c) Total options sold ?

a) Value of Option or Option Profit / Loss = Spot price - Strike Price

Value of Option or Option Profit / Loss = 74 - 78

Option Profit / (Loss) = (-\$4) per option

b) Trader's gain per option contract = Option Profit / (Loss) + Premium

Therefore, Trader's gain per option contract = -\$4 + \$5

Therefore, Trader's gain per option contract = \$1

c) Total options sold = 6 contracts x 100 options per contract

Total options sold = 600 options

d) Trader's total gain = \$1 x 600

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