A University Student Holds a Put Option for a BHP

question 53

Multiple Choice

A university student holds a put option for a BHP share with strike price $24 and premium $2. If the spot price at expiry date is $20, she will:

• A) let the option lapse and make a loss of $2.
• B) exercise the option by buying at $24 and then sell at $20 for a net profit of $2 after allowing for the premium.
• C) exercise the option by selling at $24 and then buy at $20 for a net profit of $2 after allowing for the premium.
• D) buy at $20 in the spot and then buy an option costing $2 for a net profit of $2.

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