CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
A European put option has a strike price of 40 and a premium of 3. At expiration the underlying share trades at 34. The profit to the put buyer is closest to:
The put buyer's profit is 3. The put pays 40 − 34 = 6 at expiration, and subtracting the 3 premium paid leaves a net profit of 3. Answering 6 would ignore the cost of buying the option.
- A3Correct
- B6
- C9
Explanation
Payoff at expiry = max(40 − 34, 0) = 6. Profit = payoff minus premium = 6 − 3 = 3. Choosing 6 ignores the premium paid, and 9 adds the premium instead of subtracting it.
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