At contract maturity the value of a put option is ___________ where X equals the option's strike price and S_T is the stock price at contract expiration. A) Max(0, S_T - X) B) Min(0, S_T - X) C) Max(0, X - S_T) D) Min(0, X - S_T)

Question

Quizplus · Accepted Answer

At contract maturity, the value of a put option is given by the formula Max(0, X - S_T). This is because the put option gives the holder the right to sell the underlying asset at the strike price, X. Therefore, if the stock price at contract expiration is lower than the strike price, the holder will exercise the option and sell the asset at X, which will result in a profit of X - S_T. However, if the stock price is higher than the strike price, the holder will not exercise the option, as it would result in a loss. Therefore, the value of the put option at contract maturity is the maximum of 0 and X - S_T.

At Contract Maturity the Value of a Put Option Is