The CEO of a growing cyber-security firm was awarded 25,000 stock options as part of her pay package. She can exercise the options -turn them into stock- in two years. The companys stock price was $35.00 per share at the time of the stock option grant. Shortly after the option award was received, she went to an investment banking firm and bought put options at a strike price of $35.00. The option expires in two years.

(i) What does the put option do for the CEO? Carefully explain why your stated result occurs.

(ii) Stock options and stock ownership are included in compensation packages to create incentives for CEOs to create value for shareholders. Does this put option purchase change those incentives? If so, how?

(iii) If you were a shareholder in this company, would you want to be informed about these types of transactions by the CEO?