Final answer:
Steve's net profit after hedging his stock position with put options and then closing all positions when the stock price decreased would be $2,640.
Step-by-step explanation:
Calculating Net Profit from Stock and Options Trading:
Steve originally purchased 300 shares of stock at $20 per share. The cost for these shares would be 300 x $20 = $6,000. When the stock price rose to $33, Steve hedged his position by buying 3 put options (which can control 100 shares each) at a cost of $120 each, totaling $360 for the puts. The puts have an exercise price of $30, meaning Steve could sell his stocks at $30 per share if the market price was lower. A week before expiration, the stock was at $22 per share. If Steve exercised his puts, he would be able to sell his shares at $30 instead of $22, thus making $8 more per share minus the cost of the puts. He could sell all 300 shares at this rate, which is 300 x $30 = $9,000. Since he bought the shares at $6,000, his gross profit from the shares would be $9,000 - $6,000 = $3,000.
However, we must account for the cost of the puts. His net profit from the shares after the option cost would be $3,000 (gross profit) - $360 (cost of puts) = $2,640. Therefore, Steve earned a net profit of $2,640 from closing out all of his positions.