Series 7 practice questionhardOptions — Protective Put Calculation
An investor buys 100 shares of MNO at $40 and buys 1 MNO Dec 35 put at $1.50. At expiration, MNO is at $28. What is the investor's loss?
- A$650✓ Correct answer
- B$1,200
- C$150
- D$500
Explanation
Why A — $650
Without the put, the loss would be $12 per share ($40 - $28). But the put allows selling at $35, limiting the stock loss to $5 ($40 - $35). Add the put premium of $1.50: total loss = $5 + $1.50 = $6.50 per share, or $650. The put saved the investor $550 compared to holding unprotected stock.
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