Question

The current market price of a share of a stock is 80. If a put option on this stock has a strike price of 75, the put option is ________?

1) in the money
2) out of the money
3) at the money
4) cannot be determined

Answer 1

The put option with a strike price of $75 is in the money when the current stock price is $80. Net profit calculations show profits of $15,250.01 for Nike, $7,790 for Panda Express, and $27,727.01 for Wal Mart after accounting for purchase costs and transaction fees.

Step-by-step explanation:

The current market price of a share of stock is $80, and the put option on this stock has a strike price of $75. This means that the put option allows the holder to sell the stock for more than the current market price, which is profitable. Therefore, the put option is in the money.

To determine the net profit from each stock transaction, we use the following formula: Net Profit = (Current price of stock – Purchase price per share) × Number of shares – Transaction fees.

1. For Nike: Net Profit = ($39.75 - $24.50) × 1000 - $9.99 = $15,250.01
2. For Panda Express: Net Profit = ($23.25 - $13.50) × 800 - $10 = $7,790
3. For Wal Mart: Net Profit = ($58.75 - $35.50) × 1200 - $12.99 = $27,727.01