The price of a stock on February 1 is $48 . A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2 . The options are exercised when the stock price is $39 . The trader's net profit or loss is
A. Loss of $800
B. Loss of $200
C. Gain of $200
D. Loss of $900
C
The payoff is 40−39 or $1 per option. For 200 options the payoff is therefore 1×200 or $200 . However the premium received by the trader is 2×200 or $400 . The trader therefore has a net gain of $200 .
Business
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