Question

You are long 10 put contracts on Cisco (CSCO) with a strike price of $55.00. The option premium is $1.75 per share, and the market price of CSCO on the day you enter the contracts is $54.25. If you are long the underlying shares of CSCO, what will the total gain or loss be of your position if you exercise the contracts when CSCO is selling for $49.00 per share

Answer 1

$42.50

Step-by-step explanation:

Here, buying a put option means that the option holder will gain when the share price falls below the strike price.

Strike price is $55

Premium paid is $1.75 per share

Premium paid = $1.75 * 10 = $17.5

Shares are selling for $49

=> $(55- 49) * 10 contracts = $60.

So, net profit = $60 - $17.5 = $42.5