The point of purchasing a European option is to limit the risk of a decrease in the pershare price of the stock. Suppose you purchased 200 shares of the stock at $28 per share and 75 six-month European put options with an exercise price of $26. Each put option costs $1.

Parameters Costs of Put Option $1 Exercise Price $26 Horizon (months) 6 Price per Share $28 Price - End of Horizon $23 Model Number of Shares Purchased 200 Number of Puts Purchased 75 Value of the Option 3.00 Portfolio Value with Options Cost of the Portfolios with Options Profit with Options Portfolio Value w/o Options Cost of the Portfolios w/o Options Profit w/o Options