You have purchased a put option on Pfizer common stock. The option has an exerci

Question

You have purchased a put option on Pfizer common stock. The option has an exercise price of $53 and Pfizer?s stock currently trades at $55. The option premium is $0.80 per contract. a. What is your net profit on the option if Pfizer?s stock price does not change over the life of the option? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) Net profit S per share b. What is your net profit on the option if Pfizer?s stock price falls to $50 and you exercise the option? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16)) Net profit S per share

Explanation / Answer

Put Option

Exercise Price =$53

Current Price =$55

Option premium=$0.80 per contract

a.Net profit on put option=Exercise Price-Stock Price-Option Premium

=53-55-0.80=-1.20

b.Current Price=$50

Exercise Price=$53

Net Profit=Exercise Price-Stock Price-Option Premium

   =53-50-0.80=2.20

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