Question

tock is trading at $100 and you buy a put option on it with one year to expiration and a strike price of $110. The put premium is $15. What is the maximum profit you can make on this put option if you wait until expiration

Answer 1

The answer is -$5

Step-by-step explanation:

A put option gives its owner/holder the right but not the obligation to sell. The holder of a put option is expecting the price of the underlying asset(stock) to drop.

The formula is:

Profit = max(0, X - St) - P

where X is the strike or exercise price

St is the market value or the spot price of the underlying asset

P is the premium

max(0, $110 - $100) - $15

10 - $15

-$5