
Explanation:
When an investor sells a put option, they receive the premium upfront. For a European put option, the seller's profit at expiration depends on whether the option is exercised.
Given:
Analysis:
Put option payoff for the seller:
Seller's profit calculation:
Why other options are incorrect:
Key Concept: For a put option seller, maximum profit occurs when the option expires worthless (out-of-the-money), and the profit equals the premium received. The seller's profit is limited to the premium, while potential losses can be substantial if the underlying price falls significantly.
An investor sells a European put option with the following characteristics:
| Put price | 30 |
|---|---|
| Exercise price | 600 |
If the price of the underlying at expiration is 620, the profit for the seller is:
A
B
C
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