SIE practice questionmediumProtective puts
A customer buys 100 shares of JKL at $45 and 1 JKL 45 put at $2. If JKL falls to $40 at expiration, what is the net result?
- ALoss of $200✓ Correct answer
- BBreak even
- CGain of $500
- DLoss of $700
Explanation
Why A — Loss of $200
The put allows sale at $45, but $2 per share was paid for the put, so net loss = $2 x 100 = $200. Without the put, loss would be greater.
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