Skip to content
Rob's s1452 Notes

✏️ Practice wih Puts

Long Put Practice Problems

✏️ Long Put #1

✏️ You have Bought a K=$46 Put. It is about to expire. Suppose S=$49 and Premium=$1.

  1. Will you exercise this option?
  2. What is your Per-Share Profit or Loss (P/L)?
    ✔ Click here to view answer

    Short Answer:

    1. Out of The Money, so WON'T be exercised.
    2. P/L = -$1.

    Full Explanation:

    This Long Put allows you to sell shares of stock worth S=$49 for K=$46.

    There is no way to make money by selling something worth S=$49 for only K=$46. Because you can’t exercise the option to make money, we say the option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

    If you had shares you wanted to sell, you could easily sell them on the open market for $49. Exercising the option would mean being underpaid by $3, which we would think of as a $3 loss.

    Clearly, you won’t exercise the option, so it will just expire unexercised.

    The only impact on your P/L is the $1 premium you paid. In hindsight, this money was wasted. P/L = -$1 (per share). Better luck next time!

    ✏️ Long Put #2

    ✏️ You have Bought a K=$64 Put. It is about to expire. Suppose S=$58 and Premium=$2.

    1. Will you exercise this option?
    2. What is your Per-Share Profit or Loss (P/L)?
      ✔ Click here to view answer

      Short Answer:

      1. In The Money, so WILL be exercised.
      2. P/L = $4.

      Full Explanation:

      This Long Put allows you to sell shares of stock worth S=$58 for K=$64. $64 is a great price for something only worth $58. It's a $6 premium.

      A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$64.

      If you have shares you want to sell, you can exercise the option to sell them for $6 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $58 on the open market. You then exercise your option to sell the same shares for $64, pocketing a $6 profit.

      Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $6.

      In addition to the $6 gain, you also paid a premium of $2. Therefore, your final P/L combines the $6 gain and the $2 loss: P/L = $6 - $2 = $4 (per share).

      ✏️ Long Put #3

      ✏️ You have Bought a K=$73 Put. It is about to expire. Suppose S=$67 and Premium=$3.

      1. Will you exercise this option?
      2. What is your Per-Share Profit or Loss (P/L)?
        ✔ Click here to view answer

        Short Answer:

        1. In The Money, so WILL be exercised.
        2. P/L = $3.

        Full Explanation:

        This Long Put allows you to sell shares of stock worth S=$67 for K=$73. $73 is a great price for something only worth $67. It's a $6 premium.

        A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$73.

        If you have shares you want to sell, you can exercise the option to sell them for $6 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $67 on the open market. You then exercise your option to sell the same shares for $73, pocketing a $6 profit.

        Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $6.

        In addition to the $6 gain, you also paid a premium of $3. Therefore, your final P/L combines the $6 gain and the $3 loss: P/L = $6 - $3 = $3 (per share).

        ✏️ Long Put #4

        ✏️ You have Bought a K=$35 Put. It is about to expire. Suppose S=$30 and Premium=$4.

        1. Will you exercise this option?
        2. What is your Per-Share Profit or Loss (P/L)?
          ✔ Click here to view answer

          Short Answer:

          1. In The Money, so WILL be exercised.
          2. P/L = $1.

          Full Explanation:

          This Long Put allows you to sell shares of stock worth S=$30 for K=$35. $35 is a great price for something only worth $30. It's a $5 premium.

          A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$35.

          If you have shares you want to sell, you can exercise the option to sell them for $5 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $30 on the open market. You then exercise your option to sell the same shares for $35, pocketing a $5 profit.

          Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $5.

          In addition to the $5 gain, you also paid a premium of $4. Therefore, your final P/L combines the $5 gain and the $4 loss: P/L = $5 - $4 = $1 (per share).

          ✏️ Long Put #5

          ✏️ You have Bought a K=$82 Put. It is about to expire. Suppose S=$89 and Premium=$1.

          1. Will you exercise this option?
          2. What is your Per-Share Profit or Loss (P/L)?
            ✔ Click here to view answer

            Short Answer:

            1. Out of The Money, so WON'T be exercised.
            2. P/L = -$1.

            Full Explanation:

            This Long Put allows you to sell shares of stock worth S=$89 for K=$82.

            There is no way to make money by selling something worth S=$89 for only K=$82. Because you can’t exercise the option to make money, we say the option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

            If you had shares you wanted to sell, you could easily sell them on the open market for $89. Exercising the option would mean being underpaid by $7, which we would think of as a $7 loss.

            Clearly, you won’t exercise the option, so it will just expire unexercised.

            The only impact on your P/L is the $1 premium you paid. In hindsight, this money was wasted. P/L = -$1 (per share). Better luck next time!

            Short Put Practice Problems

            ✏️ Short Put #1

            ✏️ You have Sold/Written a K=$46 Put. It is about to expire. Suppose S=$40 and Premium=$3.

            1. Will this option be exercised?
            2. What is your Per-Share Profit or Loss (P/L)?
              ✔ Click here to view answer

              Short Answer:

              1. In The Money, so WILL be exercised.
              2. P/L = -$3.

              Full Explanation:

              You have sold an option that obligates you to buy shares of stock worth S=$40 for K=$46 if requested.

              You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$46.

              By selling shares worth $40 for $46 (a premium of $6), your counterparty can make $6 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $6 for its owner.

              We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $46. The shares are only worth $40, so you will overpay by $6. Just as your counterparty gains $6, you lose $6. The IV of the option is both their gain and your loss.

              Offsetting your $6 loss from selling the shares, you have also already received a premium of $3 from your counterparty. Your final per-share premium is P/L = $3 - $6 = -$3.

              (For comparison, your counterparty's final P/L is $3. As always, one party's gain is the other party's loss.)

              ✏️ Short Put #2

              ✏️ You have Sold/Written a K=$36 Put. It is about to expire. Suppose S=$33 and Premium=$1.

              1. Will this option be exercised?
              2. What is your Per-Share Profit or Loss (P/L)?
                ✔ Click here to view answer

                Short Answer:

                1. In The Money, so WILL be exercised.
                2. P/L = -$2.

                Full Explanation:

                You have sold an option that obligates you to buy shares of stock worth S=$33 for K=$36 if requested.

                You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$36.

                By selling shares worth $33 for $36 (a premium of $3), your counterparty can make $3 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $3 for its owner.

                We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $36. The shares are only worth $33, so you will overpay by $3. Just as your counterparty gains $3, you lose $3. The IV of the option is both their gain and your loss.

                Offsetting your $3 loss from selling the shares, you have also already received a premium of $1 from your counterparty. Your final per-share premium is P/L = $1 - $3 = -$2.

                (For comparison, your counterparty's final P/L is $2. As always, one party's gain is the other party's loss.)

                ✏️ Short Put #3

                ✏️ You have Sold/Written a K=$74 Put. It is about to expire. Suppose S=$77 and Premium=$2.

                1. Will this option be exercised?
                2. What is your Per-Share Profit or Loss (P/L)?
                  ✔ Click here to view answer

                  Short Answer:

                  1. Out of The Money, so WON'T be exercised.
                  2. P/L = $2.

                  Full Explanation:

                  You have sold an option that obligates you to buy shares of stock worth S=$77 for K=$74 if requested.

                  You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$74.

                  There is no way for your counterparty to make money by selling you shares worth $77 for only $74. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                  Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $2 premium your counterparty paid you. P/L = $2 (per share).

                  ✏️ Short Put #4

                  ✏️ You have Sold/Written a K=$57 Put. It is about to expire. Suppose S=$50 and Premium=$1.

                  1. Will this option be exercised?
                  2. What is your Per-Share Profit or Loss (P/L)?
                    ✔ Click here to view answer

                    Short Answer:

                    1. In The Money, so WILL be exercised.
                    2. P/L = -$6.

                    Full Explanation:

                    You have sold an option that obligates you to buy shares of stock worth S=$50 for K=$57 if requested.

                    You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$57.

                    By selling shares worth $50 for $57 (a premium of $7), your counterparty can make $7 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $7 for its owner.

                    We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $57. The shares are only worth $50, so you will overpay by $7. Just as your counterparty gains $7, you lose $7. The IV of the option is both their gain and your loss.

                    Offsetting your $7 loss from selling the shares, you have also already received a premium of $1 from your counterparty. Your final per-share premium is P/L = $1 - $7 = -$6.

                    (For comparison, your counterparty's final P/L is $6. As always, one party's gain is the other party's loss.)

                    ✏️ Short Put #5

                    ✏️ You have Sold/Written a K=$66 Put. It is about to expire. Suppose S=$72 and Premium=$3.

                    1. Will this option be exercised?
                    2. What is your Per-Share Profit or Loss (P/L)?
                      ✔ Click here to view answer

                      Short Answer:

                      1. Out of The Money, so WON'T be exercised.
                      2. P/L = $3.

                      Full Explanation:

                      You have sold an option that obligates you to buy shares of stock worth S=$72 for K=$66 if requested.

                      You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$66.

                      There is no way for your counterparty to make money by selling you shares worth $72 for only $66. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                      Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $3 premium your counterparty paid you. P/L = $3 (per share).

                      ✏️ Short Put #6

                      ✏️ You have Sold/Written a K=$44 Put. It is about to expire. Suppose S=$38 and Premium=$2.

                      1. Will this option be exercised?
                      2. What is your Per-Share Profit or Loss (P/L)?
                        ✔ Click here to view answer

                        Short Answer:

                        1. In The Money, so WILL be exercised.
                        2. P/L = -$4.

                        Full Explanation:

                        You have sold an option that obligates you to buy shares of stock worth S=$38 for K=$44 if requested.

                        You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$44.

                        By selling shares worth $38 for $44 (a premium of $6), your counterparty can make $6 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $6 for its owner.

                        We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $44. The shares are only worth $38, so you will overpay by $6. Just as your counterparty gains $6, you lose $6. The IV of the option is both their gain and your loss.

                        Offsetting your $6 loss from selling the shares, you have also already received a premium of $2 from your counterparty. Your final per-share premium is P/L = $2 - $6 = -$4.

                        (For comparison, your counterparty's final P/L is $4. As always, one party's gain is the other party's loss.)

                        ✏️ Short Put #7

                        ✏️ You have Sold/Written a K=$75 Put. It is about to expire. Suppose S=$74 and Premium=$1.

                        1. Will this option be exercised?
                        2. What is your Per-Share Profit or Loss (P/L)?
                          ✔ Click here to view answer

                          Short Answer:

                          1. In The Money, so WILL be exercised.
                          2. P/L = -$0.

                          Full Explanation:

                          You have sold an option that obligates you to buy shares of stock worth S=$74 for K=$75 if requested.

                          You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$75.

                          By selling shares worth $74 for $75 (a premium of $1), your counterparty can make $1 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $1 for its owner.

                          We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $75. The shares are only worth $74, so you will overpay by $1. Just as your counterparty gains $1, you lose $1. The IV of the option is both their gain and your loss.

                          Offsetting your $1 loss from selling the shares, you have also already received a premium of $1 from your counterparty. Your final per-share premium is P/L = $1 - $1 = -$0.

                          (For comparison, your counterparty's final P/L is $0. As always, one party's gain is the other party's loss.)

                          Mixed Long Puts and Short Puts

                          ✏️ Mixed Put #1

                          ✏️ You have Sold/Written a K=$48 Put. It is about to expire. Suppose S=$42 and Premium=$4.

                          1. Will this option be exercised?
                          2. What is your Per-Share Profit or Loss (P/L)?
                            ✔ Click here to view answer

                            Short Answer:

                            1. In The Money, so WILL be exercised.
                            2. P/L = -$2.

                            Full Explanation:

                            You have sold an option that obligates you to buy shares of stock worth S=$42 for K=$48 if requested.

                            You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$48.

                            By selling shares worth $42 for $48 (a premium of $6), your counterparty can make $6 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $6 for its owner.

                            We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $48. The shares are only worth $42, so you will overpay by $6. Just as your counterparty gains $6, you lose $6. The IV of the option is both their gain and your loss.

                            Offsetting your $6 loss from selling the shares, you have also already received a premium of $4 from your counterparty. Your final per-share premium is P/L = $4 - $6 = -$2.

                            (For comparison, your counterparty's final P/L is $2. As always, one party's gain is the other party's loss.)

                            ✏️ Mixed Put #2

                            ✏️ You have Bought a K=$49 Put. It is about to expire. Suppose S=$41 and Premium=$2.

                            1. Will you exercise this option?
                            2. What is your Per-Share Profit or Loss (P/L)?
                              ✔ Click here to view answer

                              Short Answer:

                              1. In The Money, so WILL be exercised.
                              2. P/L = $6.

                              Full Explanation:

                              This Long Put allows you to sell shares of stock worth S=$41 for K=$49. $49 is a great price for something only worth $41. It's a $8 premium.

                              A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$49.

                              If you have shares you want to sell, you can exercise the option to sell them for $8 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $41 on the open market. You then exercise your option to sell the same shares for $49, pocketing a $8 profit.

                              Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $8.

                              In addition to the $8 gain, you also paid a premium of $2. Therefore, your final P/L combines the $8 gain and the $2 loss: P/L = $8 - $2 = $6 (per share).

                              ✏️ Mixed Put #3

                              ✏️ You have Sold/Written a K=$56 Put. It is about to expire. Suppose S=$58 and Premium=$3.

                              1. Will this option be exercised?
                              2. What is your Per-Share Profit or Loss (P/L)?
                                ✔ Click here to view answer

                                Short Answer:

                                1. Out of The Money, so WON'T be exercised.
                                2. P/L = $3.

                                Full Explanation:

                                You have sold an option that obligates you to buy shares of stock worth S=$58 for K=$56 if requested.

                                You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$56.

                                There is no way for your counterparty to make money by selling you shares worth $58 for only $56. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $3 premium your counterparty paid you. P/L = $3 (per share).

                                ✏️ Mixed Put #4

                                ✏️ You have Sold/Written a K=$63 Put. It is about to expire. Suppose S=$69 and Premium=$4.

                                1. Will this option be exercised?
                                2. What is your Per-Share Profit or Loss (P/L)?
                                  ✔ Click here to view answer

                                  Short Answer:

                                  1. Out of The Money, so WON'T be exercised.
                                  2. P/L = $4.

                                  Full Explanation:

                                  You have sold an option that obligates you to buy shares of stock worth S=$69 for K=$63 if requested.

                                  You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$63.

                                  There is no way for your counterparty to make money by selling you shares worth $69 for only $63. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                  Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $4 premium your counterparty paid you. P/L = $4 (per share).

                                  ✏️ Mixed Put #5

                                  ✏️ You have Sold/Written a K=$51 Put. It is about to expire. Suppose S=$54 and Premium=$2.

                                  1. Will this option be exercised?
                                  2. What is your Per-Share Profit or Loss (P/L)?
                                    ✔ Click here to view answer

                                    Short Answer:

                                    1. Out of The Money, so WON'T be exercised.
                                    2. P/L = $2.

                                    Full Explanation:

                                    You have sold an option that obligates you to buy shares of stock worth S=$54 for K=$51 if requested.

                                    You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$51.

                                    There is no way for your counterparty to make money by selling you shares worth $54 for only $51. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                    Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $2 premium your counterparty paid you. P/L = $2 (per share).

                                    ✏️ Mixed Put #6

                                    ✏️ You have Bought a K=$87 Put. It is about to expire. Suppose S=$83 and Premium=$3.

                                    1. Will you exercise this option?
                                    2. What is your Per-Share Profit or Loss (P/L)?
                                      ✔ Click here to view answer

                                      Short Answer:

                                      1. In The Money, so WILL be exercised.
                                      2. P/L = $1.

                                      Full Explanation:

                                      This Long Put allows you to sell shares of stock worth S=$83 for K=$87. $87 is a great price for something only worth $83. It's a $4 premium.

                                      A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$87.

                                      If you have shares you want to sell, you can exercise the option to sell them for $4 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $83 on the open market. You then exercise your option to sell the same shares for $87, pocketing a $4 profit.

                                      Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $4.

                                      In addition to the $4 gain, you also paid a premium of $3. Therefore, your final P/L combines the $4 gain and the $3 loss: P/L = $4 - $3 = $1 (per share).

                                      ✏️ Mixed Put #7

                                      ✏️ You have Sold/Written a K=$78 Put. It is about to expire. Suppose S=$75 and Premium=$2.

                                      1. Will this option be exercised?
                                      2. What is your Per-Share Profit or Loss (P/L)?
                                        ✔ Click here to view answer

                                        Short Answer:

                                        1. In The Money, so WILL be exercised.
                                        2. P/L = -$1.

                                        Full Explanation:

                                        You have sold an option that obligates you to buy shares of stock worth S=$75 for K=$78 if requested.

                                        You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$78.

                                        By selling shares worth $75 for $78 (a premium of $3), your counterparty can make $3 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $3 for its owner.

                                        We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $78. The shares are only worth $75, so you will overpay by $3. Just as your counterparty gains $3, you lose $3. The IV of the option is both their gain and your loss.

                                        Offsetting your $3 loss from selling the shares, you have also already received a premium of $2 from your counterparty. Your final per-share premium is P/L = $2 - $3 = -$1.

                                        (For comparison, your counterparty's final P/L is $1. As always, one party's gain is the other party's loss.)

                                        ✏️ Mixed Put #8

                                        ✏️ You have Bought a K=$54 Put. It is about to expire. Suppose S=$55 and Premium=$4.

                                        1. Will you exercise this option?
                                        2. What is your Per-Share Profit or Loss (P/L)?
                                          ✔ Click here to view answer

                                          Short Answer:

                                          1. Out of The Money, so WON'T be exercised.
                                          2. P/L = -$4.

                                          Full Explanation:

                                          This Long Put allows you to sell shares of stock worth S=$55 for K=$54.

                                          There is no way to make money by selling something worth S=$55 for only K=$54. Because you can’t exercise the option to make money, we say the option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                          If you had shares you wanted to sell, you could easily sell them on the open market for $55. Exercising the option would mean being underpaid by $1, which we would think of as a $1 loss.

                                          Clearly, you won’t exercise the option, so it will just expire unexercised.

                                          The only impact on your P/L is the $4 premium you paid. In hindsight, this money was wasted. P/L = -$4 (per share). Better luck next time!

                                          ✏️ Mixed Put #9

                                          ✏️ You have Sold/Written a K=$45 Put. It is about to expire. Suppose S=$51 and Premium=$3.

                                          1. Will this option be exercised?
                                          2. What is your Per-Share Profit or Loss (P/L)?
                                            ✔ Click here to view answer

                                            Short Answer:

                                            1. Out of The Money, so WON'T be exercised.
                                            2. P/L = $3.

                                            Full Explanation:

                                            You have sold an option that obligates you to buy shares of stock worth S=$51 for K=$45 if requested.

                                            You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$45.

                                            There is no way for your counterparty to make money by selling you shares worth $51 for only $45. Therefore, we say this option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                            Given this, your counterparty won’t exercise the option. The only impact on your P/L is the $3 premium your counterparty paid you. P/L = $3 (per share).

                                            ✏️ Mixed Put #10

                                            ✏️ You have Bought a K=$48 Put. It is about to expire. Suppose S=$45 and Premium=$2.

                                            1. Will you exercise this option?
                                            2. What is your Per-Share Profit or Loss (P/L)?
                                              ✔ Click here to view answer

                                              Short Answer:

                                              1. In The Money, so WILL be exercised.
                                              2. P/L = $1.

                                              Full Explanation:

                                              This Long Put allows you to sell shares of stock worth S=$45 for K=$48. $48 is a great price for something only worth $45. It's a $3 premium.

                                              A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$48.

                                              If you have shares you want to sell, you can exercise the option to sell them for $3 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $45 on the open market. You then exercise your option to sell the same shares for $48, pocketing a $3 profit.

                                              Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $3.

                                              In addition to the $3 gain, you also paid a premium of $2. Therefore, your final P/L combines the $3 gain and the $2 loss: P/L = $3 - $2 = $1 (per share).

                                              ✏️ Mixed Put #11

                                              ✏️ You have Sold/Written a K=$54 Put. It is about to expire. Suppose S=$53 and Premium=$3.

                                              1. Will this option be exercised?
                                              2. What is your Per-Share Profit or Loss (P/L)?
                                                ✔ Click here to view answer

                                                Short Answer:

                                                1. In The Money, so WILL be exercised.
                                                2. P/L = $2.

                                                Full Explanation:

                                                You have sold an option that obligates you to buy shares of stock worth S=$53 for K=$54 if requested.

                                                You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$54.

                                                By selling shares worth $53 for $54 (a premium of $1), your counterparty can make $1 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $1 for its owner.

                                                We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $54. The shares are only worth $53, so you will overpay by $1. Just as your counterparty gains $1, you lose $1. The IV of the option is both their gain and your loss.

                                                Offsetting your $1 loss from selling the shares, you have also already received a premium of $3 from your counterparty. Your final per-share premium is P/L = $3 - $1 = $2.

                                                (For comparison, your counterparty's final P/L is -$2. As always, one party's gain is the other party's loss.)

                                                ✏️ Mixed Put #12

                                                ✏️ You have Sold/Written a K=$85 Put. It is about to expire. Suppose S=$82 and Premium=$2.

                                                1. Will this option be exercised?
                                                2. What is your Per-Share Profit or Loss (P/L)?
                                                  ✔ Click here to view answer

                                                  Short Answer:

                                                  1. In The Money, so WILL be exercised.
                                                  2. P/L = -$1.

                                                  Full Explanation:

                                                  You have sold an option that obligates you to buy shares of stock worth S=$82 for K=$85 if requested.

                                                  You can think of yourself as being matched with a “counterparty” who purchased the option you wrote/sold. Just as you have a Short Put, they have a Long Put. They decide whether to exercise the Long Put they purchased. If they do, you must buy 100 shares of the underlying stock from them for K=$85.

                                                  By selling shares worth $82 for $85 (a premium of $3), your counterparty can make $3 per share (at your expense). Therefore, we say the option is “In The Money (ITM)” and has an Intrinsic Value of $3 for its owner.

                                                  We’ll assume your counterparty will exercise the option. Your counterparty will “Put” the shares out there and you will have to buy them for $85. The shares are only worth $82, so you will overpay by $3. Just as your counterparty gains $3, you lose $3. The IV of the option is both their gain and your loss.

                                                  Offsetting your $3 loss from selling the shares, you have also already received a premium of $2 from your counterparty. Your final per-share premium is P/L = $2 - $3 = -$1.

                                                  (For comparison, your counterparty's final P/L is $1. As always, one party's gain is the other party's loss.)

                                                  ✏️ Mixed Put #13

                                                  ✏️ You have Bought a K=$64 Put. It is about to expire. Suppose S=$70 and Premium=$2.

                                                  1. Will you exercise this option?
                                                  2. What is your Per-Share Profit or Loss (P/L)?
                                                    ✔ Click here to view answer

                                                    Short Answer:

                                                    1. Out of The Money, so WON'T be exercised.
                                                    2. P/L = -$2.

                                                    Full Explanation:

                                                    This Long Put allows you to sell shares of stock worth S=$70 for K=$64.

                                                    There is no way to make money by selling something worth S=$70 for only K=$64. Because you can’t exercise the option to make money, we say the option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                                    If you had shares you wanted to sell, you could easily sell them on the open market for $70. Exercising the option would mean being underpaid by $6, which we would think of as a $6 loss.

                                                    Clearly, you won’t exercise the option, so it will just expire unexercised.

                                                    The only impact on your P/L is the $2 premium you paid. In hindsight, this money was wasted. P/L = -$2 (per share). Better luck next time!

                                                    ✏️ Mixed Put #14

                                                    ✏️ You have Bought a K=$64 Put. It is about to expire. Suppose S=$65 and Premium=$1.

                                                    1. Will you exercise this option?
                                                    2. What is your Per-Share Profit or Loss (P/L)?
                                                      ✔ Click here to view answer

                                                      Short Answer:

                                                      1. Out of The Money, so WON'T be exercised.
                                                      2. P/L = -$1.

                                                      Full Explanation:

                                                      This Long Put allows you to sell shares of stock worth S=$65 for K=$64.

                                                      There is no way to make money by selling something worth S=$65 for only K=$64. Because you can’t exercise the option to make money, we say the option is “Out of The Money (OTM)” and has no intrinsic value (IV=$0).

                                                      If you had shares you wanted to sell, you could easily sell them on the open market for $65. Exercising the option would mean being underpaid by $1, which we would think of as a $1 loss.

                                                      Clearly, you won’t exercise the option, so it will just expire unexercised.

                                                      The only impact on your P/L is the $1 premium you paid. In hindsight, this money was wasted. P/L = -$1 (per share). Better luck next time!

                                                      ✏️ Mixed Put #15

                                                      ✏️ You have Bought a K=$47 Put. It is about to expire. Suppose S=$43 and Premium=$4.

                                                      1. Will you exercise this option?
                                                      2. What is your Per-Share Profit or Loss (P/L)?
                                                        ✔ Click here to view answer

                                                        Short Answer:

                                                        1. In The Money, so WILL be exercised.
                                                        2. P/L = $0.

                                                        Full Explanation:

                                                        This Long Put allows you to sell shares of stock worth S=$43 for K=$47. $47 is a great price for something only worth $43. It's a $4 premium.

                                                        A mnemonic is that you can “Put” the shares out on the market and someone else (your counterparty) will have to buy them for K=$47.

                                                        If you have shares you want to sell, you can exercise the option to sell them for $4 extra. If you don’t have shares you want to sell, you could easily borrow money and buy the shares for $43 on the open market. You then exercise your option to sell the same shares for $47, pocketing a $4 profit.

                                                        Either way, the option “In The Money (ITM)”. You will exercise it to gain the option’s intrinsic value of $4.

                                                        In addition to the $4 gain, you also paid a premium of $4. Therefore, your final P/L combines the $4 gain and the $4 loss: P/L = $4 - $4 = $0 (per share).