Question

A customer sells 1 ABC Jul 90 Put at $5 when the market price of ABC is $89. The market falls to $82 and the customer is exercised. The customer then sells the stock in the market. The loss is: A $300 B $500 C $800 D $1,100

Answer 1

A $300

Step-by-step explanation:

$90-$82= $8

$8-$5= $3

Therefore:

$3×100 shares =$300

The holder has bought the right to buy the stock at $90 per share because She bought this right for a premium of $5 per share. By exercising the call, the holder buys the stock at $90 and in which he /she sells the stock in the market at $82, for a 8 point loss. Since $5 points was paid in premiums, the net loss is 3 points or $300 on the contract covering 100 shares.