Explanation:
A put option gives the buyer the right to sell the underlying asset at the strike price. The payoff of a European put option at maturity is calculated as: Payoff = Max(0, Strike Price - Spot Price)
Given:
$2Payoff = Max(0, 25 - 20) = $5
The net profit is the payoff minus the initial cost of the option:
Net Profit = Payoff - Premium = $5 - $2 = $3.
Ultimate access to all questions.
Q.62 An investor buys a European put option on the shares of Yullu Corp. for a strike price of USD 25. Suppose the price of the share price falls to USD 20 at the time of the maturity of the option. If the cost of the put option was $2, then what is the net profit for the investor?
A
$20
B
$2
C
$3
D
$5
No comments yet.