Question31 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 undefined

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BlackTom AI · Accepted Answer

We start by understanding the position: Sussan is long 25 American put options with strike price K = 38.74, premium paid P = 3.19 per option, and current spot price S = 28.26. Each put option has intrinsic value at expiration of max(K - S, 0).
Step 1: Calculate intrinsic value per option at expiration: K - S = 38.74 - 28.26 = 10.48. Since this is positive, each option is worth 10.48 at expiration.
Step 2: Compute total intrinsic value for 25 options: 10.48 × 25 = 262.00.
Step 3: Subtract the total premium paid to obtain profit/loss: Premium paid = 3.19 × 25 = 79.75. Profit = 262.00 − 79.75 = 182.25.
Step 4: Present the final result in the requested format: a positive (profit) value of 182.25, representing the total profit on the option position after considering the premium expense. If expiration occurs when S remains below K, this analysis holds; if S rose above K by expiration, the put could be worthless and the loss would equal the premium paid, but in this scenario the intrinsic value indicates a net profit after premiums.

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