Series 7 practice questionhardOptions — Protective Put Calculation
An investor buys 100 shares of JKL at $55 and buys 1 JKL Oct 50 put at $2. At expiration, JKL is at $62. What is the investor's profit?
- A$700
- B$500✓ Correct answer
- C$1,200
- D$900
Explanation
Why B — $500
The stock gained $7 per share ($62 - $55 = $7). The put expires worthless (stock is above the $50 strike). The net profit is the stock gain minus the put premium: $7 - $2 = $5 per share, or $500. The put acted as insurance that was not needed, but the investor still profited from the stock's rise.
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