Early in 20x3, Shifter, Inc. wrote put options for 1,000 shares of its common stock. Purchasers of the options can sell Shifter stock back to Shifter for $20 per share on 12/31/x3. The estimated fair value of each option is $2 at the time of sale. At 12/31/x3, the share price is $15 and the options are exercised. As a result, Shifter:

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Business

Maddison Palmer

11 September, 19:02

Early in 20x3, Shifter, Inc. wrote put options for 1,000 shares of its common stock. Purchasers of the options can sell Shifter stock back to Shifter for $20 per share on 12/31/x3. The estimated fair value of each option is $2 at the time of sale. At 12/31/x3, the share price is $15 and the options are exercised. As a result, Shifter:

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Alan Walton · Answer 1

Answer: shifter discovers a loss of $3000

Explanation:

Because Shifter paid $5,000 more for the treasury stock than its fair value: 1,000 shares * ($20 - $15). The $2,000 fee (1,000 * $2) offsets that loss yielding a net loss of $3,000