You sold ten put option contracts on PLT stock with an exercise price of $31.20 and an option price of $1.20.Today,the option expires and the underlying stock is selling for $33 a share.Ignoring trading costs and taxes,what is your total profit on this investment?
A)−$3,300
B)−$1,200
C)$120
D)$1,200
E)$3,300

Question

Quizplus · Accepted Answer

When you sell a put option, you receive the option price upfront, but you are obligated to buy the underlying stock at the exercise price if the option is exercised. In this case, you sold 10 put option contracts, which means you received $1.20 x 10 x 100 = $1,200 in upfront premiums.

Since the option expired with the stock price above the exercise price, the option was not exercised and you do not have to buy the stock. Your profit is simply the amount of premiums you received, which is $1,200. Therefore, the answer is choice D: $1,200.

You Sold Ten Put Option Contracts on PLT Stock with an Exercise