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1. (10 points) Today's price of the Tesla, Inc. stock is So = $904. An investor instructs a broker to sell 100 European put options
1. (10 points) Today's price of the Tesla, Inc. stock is So = $904. An investor instructs a broker to sell 100 European put options (= 1 put option contract) with maturity March 11, 2022, with a strike price of K = $900 which are currently trading for $58 per option. (a) Briefly explain what the investor has agreed to. What is the investor expecting? (b) Provide the investor's profit and loss on March 11, 2022 (the maturity date T) as a function of the then prevailing Tesla stock price St. Sketch the graph of the function and add suitable annotations. (c) What must Tesla's stock price St at maturity T satisfy so that the trade will be profitable for the investor? (d) Suppose Tesla's stock price on March 11, 2022 will be either St = $800 or St = $1,000, respectively. What is the corresponding P&L for the investor in both scenarios? 1. (10 points) Today's price of the Tesla, Inc. stock is So = $904. An investor instructs a broker to sell 100 European put options (= 1 put option contract) with maturity March 11, 2022, with a strike price of K = $900 which are currently trading for $58 per option. (a) Briefly explain what the investor has agreed to. What is the investor expecting? (b) Provide the investor's profit and loss on March 11, 2022 (the maturity date T) as a function of the then prevailing Tesla stock price St. Sketch the graph of the function and add suitable annotations. (c) What must Tesla's stock price St at maturity T satisfy so that the trade will be profitable for the investor? (d) Suppose Tesla's stock price on March 11, 2022 will be either St = $800 or St = $1,000, respectively. What is the corresponding P&L for the investor in both scenarios
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