**Index XYZ is below break-even point of 486 at expiration**

If index XYZ closes above the break-even point of 486 at expiration, at 480 for instance, the option will be in-the-money and worth its intrinsic value, (difference between the strike price and index level):

$495 put strike price

__ -480__ XYZ index level

$15 intrinsic value (cash settlement amount)

If you sell the XYZ 495 put for its intrinsic value of $15 then you would see a profit:

$15.00 intrinsic value received at put’s sale

__-$9.00__ premium initially paid for put

$6.00 profit

This profit of $6.00 ($600 total) represents a return on an initial investment of $9 premium paid for the put ($900 total) of approximately 66.7% over the 3-month life of the put contract.

With XYZ at 480 at expiration, the in-the-money put could also be exercised. The exercise settlement value would be the closing index level of 480. The cash settlement amount would be: 495 (put strike price) – $480 (settlement value) = $15. The profit would be the same as if the put were sold for intrinsic value at expiration:

$15.00 settlement amount received at put’s exercise

__-$9.00__ premium initially paid for put

$6.00 profit