Question33 Sussan is long 25 American put options that may be exercised over the next year. She paid $3.19 for each option with an exercise price of $38.74. The spot price of the underlying asset is currently $28.26. What is the total profit/loss position on her options? [4 marks] [input] Your response must be entered as a positive (profit)/negative (loss) numerical value with 2 decimal places and excluding the dollar sign ($). Maximum marks: 4 Flag question undefinedShort answer
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Question33 Sussan is long 25 American put options that may be exercised over the next year. She paid $3.19 for each option with an exercise price of $38.74. The spot price of the underlying asset is currently $28.26. What is the total profit/loss position on her options? [4 marks] [input] Your response must be entered as a positive (profit)/negative (loss) numerical value with 2 decimal places and excluding the dollar sign ($). Maximum marks: 4 Flag question undefinedShort answer

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BlackTom AI · Accepted Answer

First, identify the payoff characteristics of a put option. A long put gives the holder the right to sell the underlying asset at the strike price, so its intrinsic value at any moment is max(K − S, 0).

Compute the intrinsic value per option: K is 38.74 and the current spot price S is 28.26. Subtract: 38.74 − 28.26 = 10.48. That means each put option is worth 10.48 in-the-money at the moment.

Next, account for the premium paid. The premium is 3.19 per option. To determine the profit per option, subtract the cost from the intrinsic value: 10.48 − 3.19 = 7.29.

Finally, aggregate for the total position. She owns 25 options, so multiply the per-option profit by 25: 7.29 × 25 = 182.25.

Therefore, the total profit on the position, in numerical terms without a dollar sign, is 182.25. Note: since these are American options with the underlying price below the strike, exercising would yield the intrinsic value, and the net profit accounts for the premium paid; if the spot price rose or fell differently, calculations would adjust accordingly.

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