Question

Suppose you own a put option that gives you the right to sell 200 shares of
MMM Construction to another investor for $25 per share anytime during the
next six months. MMM’s stock currently sells for $26 per share.
a. Should you exercise the option and sell the stock to the option writer (seller)
if the stock price stays at $26 per share?
b. Should you exercise the option if the stock’s price increases to $30? What
would be your gain (loss) if you bought the stock at $30 and then
exercised the option?
c. Should you exercise the option if the stock’s price decreases to $20? What
would be your gain (loss) if you bought the stock at $20 and then
exercised the option?

Answer 1

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