✏️ 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)?

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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)?

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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)?

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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)?

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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)?

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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).