You have purchased a put option on Kimberly Clark common stock. The option has a

Question

You have purchased a put option on Kimberly Clark common stock. The option has an exercise price of $79 and Kimberly Clark?s stock currently trades at $80.18. The option premium is $1.37 per share. a. Calculate your net profit on the option contract if Kimberly Clark?s stock price falls to $77 and you exercise the option. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations.) Net profit $ b. Calculate your net profit on the option contract if Kimberly Clark?s stock price does not change over the life of the option. (Negative amount should be indicated by a minus sign.) Net profit $

Explanation / Answer

a)Option is exercisable as future price is less than exercise price

Net profit = 79 -77 - 1.37 =$ .63

b)option will not be exercisable as future price is more than exercise price.

Net profit /(loss) = - 1.37

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