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12 August, 22:18

A customer buys 100 DEF at 70, but several months later, the stock is trading at 82.85. The customer, concerned about a possible pullback, buys 1 DEF Aug 80 put at 1.50. If the stock subsequently falls to 77.25 and the customer sells his stock by exercising the put, the result is:

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  1. 12 August, 22:27
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    Gain of $850

    Explanation:

    Purchase Costs:

    100 shares at $70 = $7,000 Put Option (100 x $1.5) = $150

    Total costs: $7,150

    Selling benefits (option exercise)

    100 shares at $80 = $8,000

    Result: $8,000 - $7,150 = $850

    The put option is exercised because the price is below the option price.
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