To calculate the profit or loss from buying a put option under the given conditions, we need to consider both the intrinsic value of the option at expiration and the premium paid. Let's break down the details step-by-step:

Given Data

• Current stock price: $50
• Strike price: $45
• Premium paid: $1 per share
• Number of shares: 100 (since one contract represents 100 shares)

Scenario 1: Stock price at expiration is $40

1. Determine the intrinsic value of the put option at expiration:

   • The intrinsic value of a put option at expiration is given by: $\text{Intrinsic Value} = \max(K - S_T, 0)$
   • Plugging in the given values: $\text{Intrinsic Value} = \max(45 - 40, 0) = 5$

2. Calculate the total premium paid:

   • The total premium paid is the premium per option multiplied by the number of shares: $\text{Total Premium} = P \times n = 1 \times 100 = 100$

3. Calculate the total intrinsic value at expiration:

   • The total intrinsic value is the intrinsic value per share multiplied by the number of shares: $\text{Total Intrinsic Value} = \text{Intrinsic Value} \times n = 5 \times 100 = 500$

4. Calculate the profit or loss:

   • The profit or loss is determined by subtracting the total premium paid from the total intrinsic value at expiration: $\text{Profit/Loss} = \text{Total Intrinsic Value} - \text{Total Premium}$
   • Plugging in the values: $\text{Profit/Loss} = 500 - 100 = 400$

Conclusion

• The buyer of the put option will have a profit of $400.

Would you like further details or have any questions?

Here are 8 related questions to expand on this information:

1. How does the strike price affect the profit or loss of a put option?
2. What happens to the profit/loss if the stock price at expiration is above the strike price?
3. How would the profit/loss change if the number of contracts was different?
4. Can you explain the concept of extrinsic value in options trading?
5. How would the profit/loss be affected if the premium paid was higher?
6. What is the significance of the expiration date in an options contract?
7. How is the break-even point for the buyer of a put option calculated?
8. What are some strategies to maximize profits in options trading?

Tip: When buying put options, you profit when the stock price decreases. Make sure to analyze market trends and news to make informed decisions.