Question
An investor is considering buying a put option for stock ABC with the following parameters: Exercise price of the put option is $170, initial stock
An investor is considering buying a put option for stock ABC with the following parameters:
Exercise price of the put option is $170, initial stock price $165, put option price $8.
A. Define payoff and profit function and provide payoff and profit formulae for the put option buyer at maturity with respect to stock price at expiration.
B. Define payoff and profit function and calculate the payoff and profit for a protective put position at maturity when the stock price is $180 at expiration.
C. Discuss why the stock owner should implement the protective put strategy as opposed to only buying the underlying stock.
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