The current market price of National Tire (NT) is $35. Fran Wilson writes 6-month put options on NT with strike price’$30, covering 400 shares (i.e.4 contracts), for which she receives a total premium of $1200. What is the expiration day valuS of Fran’s written put position, if NT is priced at $25 at expiration?. A. -$2,000. B. -$800. C. $2,0O0 D. $3,200.
B. Mkt price= 25. He will excercise at 30, u so essentially lose 5 dollars on every shares. Thus, -2000. But u recieved 1200 in the beginning, so, the value of put position on expiry date is -2000+1200 = -800
agree w/ maparam.
Hmm… not sure about that. If I pay £50 for a share, and it’s worth £80, then the value of my position is £80, not £30 (the profit) In this case the loss on the position is -$800, but the value of the put at expiration is -$2000. I think there’s an ambiguity here.