## Put Option Profit Formula

In order to be profitable in this scenario, you would need the intrinsic value to be at least \$20 by the time the option reaches expiration. Putting that all together, we can derive the profit formula for a put option:

• Profit = (( Strike Price – Underlying Price ) – Initial Option Price ) x number of contracts.

Using the previous data points, let’s say that the underlying price at expiration is \$50, so we get:

• Profit = (( \$75 – \$50) – \$20) x 100 contracts.
• Profit = (( \$25 ) – \$20 ) x 100 contracts.
• Profit = \$5 x 100 contracts.
• Profit = \$500.

Similarly, if the stock doesn’t decline as much (i.e. the intrinsic value is less than \$20), we will make a loss. For example, if the price was instead \$65 at expiration, we would have the following:

• Profit = (( \$75 – \$65) – \$20) x 100 contracts.
• Profit = (( \$10 ) – \$20 ) x 100 contracts.
• Profit = – \$10 x 100 contracts.
• Profit = – \$1000 (i.e. a loss of \$1,000).

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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