Explanation

For a put seller (writer), the profit calculation is:

Profit for put seller = Premium received - Max(0, Exercise price - Stock price at expiration)

Given:

• Put option premium = $1.00 (received by seller)
• Exercise price = $40.00
• Stock price at expiration = $35.00

Step 1: Calculate the put option payoff to the buyer Put option payoff = Max(0, Exercise price - Stock price) = Max(0, $40 - $35) = Max(0, $5) = $5.00

Step 2: Calculate the seller's profit The seller receives the premium but must pay the payoff to the buyer if the option is exercised.

Seller's profit = Premium received - Payoff to buyer = $1.00 - $5.00 = -$4.00

Wait, let me re-examine. The question asks for the profit for a put seller, and the options are: A. -$5.00 B. -$4.00 C. $4.00

My calculation shows -$4.00, which would be option B.

Let me double-check the logic:

• Put seller receives premium: +$1.00
• If stock price ($35) < exercise price ($40), the put is in-the-money and will be exercised
• Seller must buy the stock at $40 when it's worth $35, incurring a loss of $5.00
• Net profit = Premium received - Loss on exercise = $1.00 - $5.00 = -$4.00

However, I need to verify if there's a different interpretation. Looking at the options:

• Option C ($4.00) would be incorrect because that would imply the seller makes money when the option is in-the-money
• Option A (-$5.00) would be the loss without considering the premium
• Option B (-$4.00) is the correct net loss after premium

Therefore, the correct answer is B. -$4.00.

Key Concept: Put sellers profit when the stock price is above the exercise price (put expires worthless). When the stock price is below the exercise price, sellers incur losses equal to the difference between exercise price and stock price, minus the premium received.