The price of a stock on February 1 is $124 . A trader sells 200 put options on the stock with a strike price of $120 when the option price is $5 . The options are exercised when the stock price is $110 . The trader's net profit or loss is
A. Gain of $1,000
B. Loss of $2,000
C. Loss of $2,800
D. Loss of $1,000
D
The payoff that must be made on the options is 200×(120−110) or $2000 . The amount received for the options is 5×200 or $1000 . The net loss is therefore 2000−1000 or $1000 .
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