Asked by Brittany Orozco on Jul 04, 2024
Verified
Three months ago, you purchased a put option on WXX stock with a strike price of $60 and an option price of $.60. The option expires today when the value of WXX stock is $62.50. Ignoring trading costs and taxes, what is your total profit or loss on your investment?
A) -$310
B) -$60
C) $0
D) $60
E) $190
Put Option
This is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.
Strike Price
The set price at which an option contract can be bought (call option) or sold (put option) when it is exercised.
Total Profit
The total income a business generates after all expenses and costs have been subtracted from total revenue.
- Ascertain the net financial outcome, whether positive or negative, from diverse options investments.
Verified Answer
JL
Juliette LezakJul 09, 2024
Final Answer :
B
Explanation :
Since the stock price at expiration ($62.50) is above the strike price ($60), the put option is out of the money and expires worthless. Therefore, the total loss is equal to the initial cost of the option, which is $0.60 per share or $60 in total (options typically represent 100 shares).
Learning Objectives
- Ascertain the net financial outcome, whether positive or negative, from diverse options investments.