Problem 3

Stock is trading at $100 and you buy a put option on it with one year to expiration and a strike price of $110. The put premium is $15. What is the maximum profit you can make on this put option if you wait until expiration?

Problem 4

Stock price is $150. You see an at-the-money call option trading at $15, and at-the-money put trading at $5. The options have the same expiration date. Draw a diagram for the payoff, and a diagram for the profit (on the same graph) if you buy a straddle. Calculate and mark carefully the two breakeven points.