Can you please explain step by step on how to do this questi

**Can you please explain step by step on how to do this question*** and please show formulas used so I can understand how to do it on my own. thank you.

An investor writes a December put option with a strike price of $30. The price of the option is $4. Under what circumstances does the investor make a gain?

Solution

Firstly you have to calculate break even point(no profit no loss) of put option.
Break even of a put option : strike price - premium paid - cost of option.
Premium is writer\'s profit per share and cost of option is any transaction amount that has been paid.

Break even price = $30 - $4 = $26

If price remains above $26 seller would make a gain and he will lose if the price of the stock is below $26.