An option trader buys 1 ABC April 25 put. A few months later, the trader exercises the option. The trader's net sales proceeds e

Question

3 years ago

6

An option trader buys 1 ABC April 25 put. A few months later, the trader exercises the option. The trader's net sales proceeds e

qual the_______________.
[A] strike price
[B] strike price plus the premium
[C] strike price minus the premium
[D] market price of the stock when the put was exercised

Business

1 answer:

Lina20 [59] · Answer 1 · 2022-04-10T15:52:59+03:00

Answer:

[C] Strike price minus the premium

Explanation:

A put buyer refers to the one who purchases a right (and not the obligation) to sell(put) the underlying asset at a pre determined strike price/exercise price at a future date.

A put buyer is under no obligation to exercise his right of selling the underlying asset. He will exercise his right only when his strike price is greater than the current market price upon expiry of the contract.

Put Buyer's profit is expressed as;

= Strike price - Option premium paid - Current market price upon expiry

Thus, his NET sales proceeds are equal to his Strike Price as reduced by Option premium paid.