Question

Jeff owns an American put option on 100 shares of ABC stock. The option has a strike price of $32.50 and a September expiration date. The stock has recently been declining in value, currently sells for $27.65 per share, and is expected to continue declining in value. Ignore all costs and taxes. If today is Wednesday, August 14, he: Group of answer choices

Answer 1

Answer: b. can exercise his option and earn a profit.

Step-by-step explanation:

Put options make a profit when the underlying stock sells for less than the strike price of the option. Furthermore, an American put option can be sold at any time before the option expires.

Jeff can therefore exercise the put option and make a profit today of:

= (32.50 - 27.65) * 100 shares

= $485.00