Question

A customer sells short 100 shares of ABC stock at $80 per share. The stock falls to $70, at which point the customer writes 1 ABC Sept 70 Put at $4. The stock falls to $62 and the put is exercised. The customer has a gain per share of:

Answer 1

14 points

Step-by-step explanation:

The computation of the gain per share by the customer is shown below:

Gain per share = Sale proceeds of share - buying stock per share - premium received by the customer in case of the put option

= $80 per share - $70 per share - $4 per share

= $80 per share - $66 per share

= 14 points

The buying stock per share - premium received by the customer in case of the put option is also known as net cost to the customer

Therefore we simply applied the above formula