The price of a stock is $67 . A trader sells 5 put option contracts on the stock with a strike price of $70 when the option price is $4 . The options are exercised when the stock price is $69 . What is the trader's net profit or loss?
A. Loss of $1,500
B. Loss of $500
C. Gain of $1,500
D. Loss of $1,000
C
The option payoff is 70−69 = $1 . The amount received for the option is $4 . The gain is $3 per option. In total 5×100 = 500 options are sold. The total gain is therefore $3 × 500 = $1,500 .
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