Answer-first summary for fast verification
Answer: $40.
## Explanation For a put option seller (writer): **Key information:** - Put price (premium received) = $40 - Exercise price = $1,500 - Underlying price at expiration = $1,550 **Analysis:** 1. A put option gives the buyer the right to SELL the underlying at the exercise price. 2. The put option buyer will exercise only if the underlying price is BELOW the exercise price. 3. At expiration: - Underlying price ($1,550) > Exercise price ($1,500) - The put option is OUT OF THE MONEY - The buyer will NOT exercise the option **Profit calculation for seller:** - Premium received: +$40 - No obligation to buy (since option not exercised): $0 - Total profit = Premium received = $40 **Why other options are incorrect:** - **A. -$10**: This would be the result if the seller had to pay out $10, but the option is out of the money. - **C. $50**: This might be calculated incorrectly as exercise price minus underlying price ($1,500 - $1,550 = -$50), but that's not relevant since the option is not exercised. **Conclusion:** When a put option expires out of the money, the seller keeps the entire premium as profit.
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An investor sells a European put option with the following characteristics:
| Put price | $40 |
|---|---|
| Exercise price | $1,500 |
If the price of the underlying at expiration is $1,550, the profit or loss for the seller is:
A
-$10.
B
$40.
C
$50.
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