You purchased six put option contracts with a strike price of $29.50 and a premium of $.95. At expiration, the stock was selling for $26.70 a share. What is the total net amount you received for your shares assuming that you disposed of your shares on the expiration date?
A)$17,955
B)$17,100
C)$17,045
D)$17,815
E)$17,130

Question

Quizplus · Accepted Answer

First, calculate the intrinsic value of the put options at expiration. The strike price is $29.50, and the stock price is $26.70, so the intrinsic value per share is $29.50 - $26.70 = $2.80. Since each contract represents 100 shares, the total intrinsic value for one contract is $2.80 * 100 = $280. For six contracts, this is $280 * 6 = $1,680. Next, calculate the total premium paid for the six contracts. The premium per contract is $.95 * 100 = $95. For six contracts, this is $95 * 6 = $570.To find the net amount received, subtract the total premium paid from the total intrinsic value: $1,680 - $570 = $1,110. Finally, to find the total amount received for the shares, add the intrinsic value to the amount received from selling the shares: $1,680 (intrinsic value) + $26.70 * 600 (value of shares) = $1,680 + $16,020 = $17,700.However, since none of the provided options match this calculation, it's important to reevaluate the calculation process, especially considering the net amount received from the option exercise and the potential misinterpretation of the question's requirements.Given the discrepancy, let's correct the approach focusing on the profit from exercising the options and selling the shares, without incorrectly adding intrinsic value and share sale proceeds:Profit per share from exercising the option is the difference between the strike price and the stock price, $29.50 - $26.70 = $2.80. For 600 shares (6 contracts), the profit is $2.80 * 600 = $1,680. The cost of the options is the premium paid, $.95 per share, or $95 per contract, totaling $95 * 6 = $570 for all contracts.The net profit from the options (excluding the cost to buy them) is $1,680. To find the total net amount received, you subtract the cost of the options from the gross profit, which is $1,680 - $570 = $1,110. This calculation, however, focuses on the profit rather than the total amount received for the shares, indicating a misunderstanding in the initial explanation.The correct calculation should directly address the question's focus on the total net amount received from exercising the options and selling the shares, considering both the intrinsic value gained from exercising the options and the cost of the premiums paid for these options. Given the options provided and the calculations, there seems to be a mistake in the interpretation of the question or in the calculations provided in the initial response. The correct approach to find the total net amount received involves calculating the gain from exercising the options (difference between strike price and market price, times the number of shares), subtracting the cost of the options, and possibly considering the total amount received from selling the shares at the market price, if that was part of the transaction. However, the question specifically asks for the net amount received for the shares, implying a focus on the outcome of exercising the options and the related financial impact. Revisiting the calculations with the correct interpretation or providing a detailed breakdown based on the question's specifics would be necessary to select the correct answer from the options provided.

You Purchased Six Put Option Contracts with a Strike Price