Question

Mr. Nye went long 6 put option contracts on Eastern Imports stock at a strike price of $47.50. The option premium was $0.65. At expiration, the stock was valued at $44.90 a share. What is his percentage return? What is the breakeven stock price? What would the percentage gain or loss be if the stock price at expiration is $49.45/sh.?

Answer 1

a. Percentage return = 300%

b. Break-even stock price = $46.85

b. Percentage gain or loss = 400% loss

Step-by-step explanation:

a. What is his percentage return?

Percentage return = ($47.50 - $44.90 - $0.65) / $0.65 = $1.95 / $0.65 = 3.00, or 300%

b. What is the breakeven stock price?

Break-even stock price = Strike price - Option premium = $47.50 - $0.65 = $46.85

c. What would the percentage gain or loss be if the stock price at expiration is $49.45/sh

Percentage gain or loss = ($47.50 - $49.45 - $0.65) / $0.65 = - 4.00, or 400% loss.