Questions:
I purchased 1000 shares of Microsoft at the beginning of 2024 when their price was $180. I wanted to protect myself from a fall in the value of the shares, so I purchased a put contract for $5 with an exercise price of $200. Today the share price is $150.

What is my potential profit from these shares?

I also purchased 500 shares of Amazon at the beginning of 2024 when their price was $200. I also purchased a put contract for these shares at a cost of $5 with an exercise price of $210. Today the share price is $250.

What is my total potential profit from both of these two sets of shares and options?

Reference answers:
# Microsoft

The spot price today is $150 whereas the option contract allows an exercise price of $200. Therefore, the option contract is more valuable so it will be exercised.

Income from sale of shares = $200 * 1000 = $200,000

Purchase price of share = $180 * 1000 = $180,000

Option contract cost = $5 * 1000 = $5,000

Total Profit = $200,000 - $180,000 - $5,000 = $15,000

# Amazon

The price of Amazon’s share is $250 today whereas the option contract allows selling the share at $210 per share. In this case, it is better to sell the shares in the market and not exercise the option.

Income from sale of shares = $250 * 500 = $125,000

Purchase price of share = $200 * 500 = $100,000

Option contract cost = $5 * 500 = $2,500

Total Profit = $125,000 - $100,000 - $2,500 = $22,500



The total profit will be $15,000 + $22,500 = $37,500