Profit in a Put Option
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A step-by-step guide covering Python, SQL, analytics, and finance applications.
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Problem
Mr. ‘A’ is bearish on the stock of ‘B’ corporation. Therefore he purchase 5 put option contracts on ‘B’ corporation for a premium of $3. The exercise price is $41 and it has a maturity period of 3 months. The current market price of the stock is $40 . If Mr. ’A’ is correct and ‘B’s price fall to $30, how much profit will he earn over 3 months period?
Solution:
Since the exercise price is $30 and the exercise price is $41, his profit is $11. As he paid $3 in premium, the net profit will be $8.