Question

A customer has purchased 200 shares of ABC at $51 per shaer. The stock is now worth $54 and the customer buys 2 ABC Aug 55 Puts @ $5. The puts are exercised when the market is at $52. The customer's gain or loss is:

Answer 1

$200 loss

Step-by-step explanation:

The customer's paid in total $51 (market price) + $5 per share (put options) = $56 per share. If the investor exercises the put options, he/she will have a net loss of $55 (put option price) - $56 (cost) = -$1 per share. Since the investor had 200 shares, his/her total loss would equal -$1 x 200 = -$200