You sell (short) a European put option with strike $100. On the expiration date the price of the underlying stock is $70. What is your cash flow at expiration? (Please use a minus sign to indicate a negative cash flow)

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BlackTom AI · Accepted Answer

Rephrase the scenario in my own words: you are short a European put option with strike K = 100. On expiration, the stock price S = 70. We want the cash flow you receive (negative indicates a cash outflow).

First, recall the put option payoff at expiration for the holder is max(K − S, 0). Here, K − S = 100 − 70 = 30, which is positive, so the put finishes in the money and the holder would receive 30 in payoff.

Since you sold (short) the put, your cash flow at expiration is the opposite of the holder’s payoff. That means you incur a loss of 30, i.e., a cash outflow of 30, which should be represented with a negative sign.

Therefore, the cash flow for the short put writer at expiration is -30.

If someone mistakenly thinks you break even or ignore the intrinsic value, they would be ignoring the obligation created by the short put: you may be assigned the obligation to buy the stock at 100 if exercised, but the standard payoff accounting for a short put is simply the negative of the put’s intrinsic value at expiration when S < K.

To summarize succinctly: intrinsic value of the put = 30, but as the writer you experience -30 cash flow at expiration, matching the required minus sign to indicate a negative cash flow.

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You sell (short) a European put option with strike $100. On the expiration date the price of the underlying stock is $70. What is your cash flow at expiration? (Please use a minus sign to indicate a negative cash flow)

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