Suppose you purchase five put contracts on Testaburger Co Th

Suppose you purchase five put contracts on Testaburger Co. The strike price is $79, and the premium is $3.1. If, at expiration, the stock is selling for $63 per share, what are your put options worth? What is your net profit?

Solution

Strike is 79

Premium is 3

Put option gives ruight to sell share at strike price of 79,

So if stock is selling at 63, gainis 79-63= 16 per share

For 5 share its 16×5= 80$ and premium for 5 option is 5×3=15

Netgainis 80-15=65$, so the investor made good net gain of 65$