Derivatives Q25

0. A market participant has a view regarding the potential movement of a stock. He sells a customized over-the-counter put option on the stock when the stock is trading at $46. The put has an exercise price of $44 and the put seller receives $2.5 in premium. The price of the stock is $43 at expiration. The profit or loss for the put seller at expiration is:

Answer
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Option : B
Explanation : Profit = max (0, premium – value of put at expiration) = max (0, premium- (X-S)) = 2.5 – 1 = 1.5.

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