Jennifer purchased 3 put option contracts on Winslow Mfg. stock. The option premium was $.75 and the strike price was $27.50. On the expiration date, the stock was selling for $27.75 a share. What is the total payoff on the option contracts?
A)−$100
B)−$50
C)$0
D)$50
E)$150

Question

Quizplus · Accepted Answer

Since the stock price is above the strike price, the put options are worthless and Jennifer will not exercise them. Therefore, the total payoff is equal to the total premium paid, which is 3 contracts x $0.75 per contract = $2.25. Since Jennifer paid money for the options and did not earn any return, the payoff is negative, but since it is only $2.25, the closest answer choice is $0.

Jennifer Purchased 3 Put Option Contracts on Winslow Mfg