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5 August, 07:14

You purchase one IBM July 120 put contract for a premium of $5. You hold the option until the expiration date when IBM stock is at $123 per share on the market. How much profit or loss you will realize a on the investment? A. $500 loss B. $0 profit C. $300 profit D. $200 loss

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  1. 5 August, 07:19
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    Answer: Net loss = $2

    Explanation:

    Given that,

    Purchase one IBM July 120 put contract for a premium of $5

    IBM stock is at $123 per share on the market

    In buying these kind of call option, a person can makes the profit if the future price of the share is greater than the strike price.

    Here,

    Profit = $123 - $120 = $3

    But, we have to deduct the premium paid that is $5

    Therefore,

    Net loss = Profit - premium paid

    = 3 - 5

    =$2 ⇒ This much loss realize on a the investment.
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