CFA Level I · CFA Level I Exam · Pricing and Valuation of Options
An investor buys a share at 50 and buys a put option on it with a strike of 45 for a premium of 3. At expiration the share price is 30. The investor's net profit per share on the protective put position is closest to:
The net profit is about -8 per share. The share loses 20, the put pays 15 at expiration, and the 3 premium paid reduces that gain to 12. The maximum loss on a protective put is purchase price minus strike plus premium, which is 8.
- A-20
- B-8Correct
- C+3
Explanation
Share loss = 30 - 50 = -20. Put payoff = 45 - 30 = 15, less premium 3 gives +12. Net = -20 + 12 = -8. Check: maximum loss = 50 - 45 + 3 = 8.
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