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 $72 and Kimberly Clark’s stock currently trades at $73.18. The option premium is $1.41 per contract. Assume that 100 shares are traded.

Calculate your net profit on the option if Kimberly Clark’s stock price falls to $70 and you exercise the option. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

Calculate your net profit on the option if Kimberly Clark’s stock price does not change over the life of the option. (Negative amount should be indicated by a minus sign.)

You have purchased a put option on Kimberly Clark common stock. The option has an exercise price of $72 and Kimberly Clark’s stock currently trades at $73.18. The option premium is $1.41 per contract. Assume that 100 shares are traded.

Explanation / Answer

a. net profit on the option = 100*(72 - 70) - 100*1.41

net profit on the option = 59

b. if price does not change the option expires worthless

net profit on the option = -100*1.41 = -141

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