Suppose you believe that Du Pont\'s stock price is going to decline from its cur

Question

Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 84.06 sometime during the next 5 months. For $ 851.92 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $ 90 per share. If you bought a 100-share contract for $ 851.92 and Du Pont's stock price actually changed to $ 80.36 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract.

Explanation / Answer

The option was bought with a strike price of 90 per share. And later it was 80.36 per share.

Calculating gross profit:

Gross Profit per share = strike price - exercise price = 90 - 80.36 = 9.64 per share,

Total gross profit would be 9.64 * 100 = 964. (100 is the contract size)

The gross profit would be reduced by transaction cost, thus the net profit would be 964 - 851.92 = 112.08 (Answer)

You would make a total of $ 112.08 on the entire transaction.

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