Series 7 practice questionhardOptions — Put Buyer Scenario
An investor buys 2 DEF Jun 40 puts at $3 each. At expiration, DEF is at $31. What is the total profit?
- A$600
- B$1,200✓ Correct answer
- C$1,800
- D$900
Explanation
Why B — $1,200
Each put gains $9 in intrinsic value ($40 - $31 = $9) minus the $3 premium = $6 profit per share. With 2 contracts at 100 shares each: $6 x 200 shares = $1,200 total profit. The breakeven was $37 ($40 - $3), and the stock at $31 is well below, resulting in significant profit.
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