You are holding 500 shares of a firm which you are worried might drop in value over the next three months. You want to protect the value of your investment, so you decide to purchase five 90-day put options at the stock's current market rate of $181 per share. The option itself costs $700 each. 30-Days out: With only 30 days remaining until the option expires, each option has an intrinsic value of $800. What does this mean the stock price must be? Answer: Stock Price = $ 173 Put earn money gains intrinsic value) Scenario 1: By the end of the 90 days, your stock ended up increasing in value to $185.60 per share. What is your net profit/loss in this case? Will you exercise your option in this case? Answer: Loss of $1200 No a Scenario 2: Over the course of the past 90 days, a disappointing quarterly earnings report hurt the stock's value, and now your stock is only worth $176.80 per share. What is your net profit/loss in this case? Will you exercise your option in this case? 2 Answer: Loss of $1400 Yes