You Own a Put Option on a Stock and the Strike

question 48

Multiple Choice

You own a put option on a stock and the strike price of the option is $30.The option has 3 weeks until expiration and the stock is currently priced at $35 per share.What is the largest payout possible for this put option? Ignore the original cost of the option for the payout calculation.

• A) $0
• B) $5
• C) $30
• D) the payout is unlimited

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Definitions:

Economist

A professional who studies the production, distribution, and consumption of goods and services, focusing on how economic agents behave and interact.

Government Intervention

Government intervention involves actions taken by a government to affect the economy, which can include regulations, subsidies, tariffs, and monetary policies.

Externality

A consequence of an economic activity that is experienced by unrelated third parties; it can be either positive or negative.

Efficient Allocation

An optimal distribution of resources in an economy where it is not possible to make someone better off without making someone else worse off.