Question

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

Answer 1

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.