Question

A speculator purchases a put option for a premium of $4, with an exercise price of $30. The stock is presently priced at $29, and rises to $32 before the expiration date. What is the maximum profit per unit to the speculator who owned the put option assuming he or she exercises the option at the ideal time

Answer 1

Answer: - $3

Explanation:

We should note that the holder of a put will gain when the share price is below the exercise price.

Since the gain with regards to the question is ($30 - $29) = $1 and the premium paid is 4, then the maximum profit per unit will be:

= Gain - Premium paid

= $1 - $4

= -$3.