You Sold Ten Put Option Contracts on PLT Stock with an Exercise

question 62

Multiple Choice

You sold ten put option contracts on PLT stock with an exercise price of $32.50 and an option price of $1.10.Today,the option expires when the underlying stock is selling for $34.30 a share.Ignoring trading costs and taxes,what is your total profit on this investment?

• A)$2,900
• B)− $1,100
• C)$700
• D)$1,100
• E)− $2,900

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Definitions:

Taxes

Mandatory fiscal contributions or other forms of levies required from taxpayers by governmental bodies to support government expenditures and diverse public costs.

Regressive Tax

A tax system where the tax rate decreases as the taxable amount increases, placing a higher relative burden on lower-income earners.

Excise Tax

A tax levied on the manufacture, sale, or consumption of certain products or activities, often specific to certain goods like tobacco, alcohol, and fuel.

Deadweight Loss

The loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved.