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What is the net profit on common stock option

Response to the following problem:

You have purchased a put option on Pfizer common stock. The option has an exercise price of $38 and Pfizer's stock currently trades at $40. The option premium is $0.50 per contract.

a. What is your net profit on the option if Pfizer's stock price does not change over the life of the option?

b. What is your net profit on the option if Pfizer's stock price falls to $34 and you exercise the option?

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Accounting Basics: What is the net profit on common stock option

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Accounting Basics: What is the net profit on common stock option

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