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Consider a put option on the S&P 500 index with 12 months to expiration, European exercise style and a strike price of $1,100. The option
Consider a put option on the S&P 500 index with 12 months to expiration, European exercise style and a strike price of $1,100. The option premium is $50. a) What is the payoff and the profit for the buyer of the option if the spot price of this index is $1,100 at expiration? Will the option be exercised? b) What is the payoff and the profit for the seller of the option if the spot price of this index is $1,100 at the expiration? c) What is the payoff and the profit for the buyer of the option if the spot price of this index is $850 at the expiration? Will the option be exercised? d) What is the payoff and the profit for the seller of the option if the spot price of this index is $850 at the expiration? e) Graph payoff and profit for the buyer of the option showing the values of the spot price where the option will be in-the-money, out-of-the-money, and at-the-money. Graph payoff and profit for the seller of the option f)
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