1. A put option on a stock has a strike price of $57 per share and a premium of
ID: 2809839 • Letter: 1
Question
1. A put option on a stock has a strike price of $57 per share and a premium of $2.00 per share. The stock is currently selling for $58 per share. At a market price of $58 per share, the naked long put per-share profit is -$2.00. What is the short put per-share profit in this case?
2. A put option on a stock has a strike price of $57 per share and a premium of $2.00 per share. The stock is currently selling for $58 per share. For this option, the maximum possible per-share loss for a naked long put position is:
Explanation / Answer
1) Market price = 58
Strike = 57
Payoff on stock = 0 since market price is above strike price
Profit for short put = $2 as it is the cost of option premium received. Option will expire wirthless so no clawback on premium.
2) Maximum loss for a put option shall be the option premium paid
Hence maximum loss = $2
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