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An investor buys a European put option on a share for 3 . The current stock price is 2 1 and the strike price is

An investor buys a European put option on a share for

3 .

The current stock price is

21

and

the strike price is

18 .

The maturity of the option is in

3

months. Briefly discuss the investor

motivation for purchasing the put option. Draw a diagram showing the investor

s potential

profit

/

loss on this position at maturity.

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