Today a JPMorgan (JPM) trader buys 100 puts (on a stock) for P = $6 each (K=$100, T=1 year and 0.5 = p ). The initial stock price is S = $100 and the price falls next day to S=$99, with a new delta of 0.6 = p . The risk-free rate is 0.01% per day (3.7% pa). The stock price falls (monotonically) to ST =$70 at maturity of the option, when 1 = p . The JPM trader delta hedges the puts and ends up with debt (ie. bank loan) of $10,010.

Required

i) Explain how the JPM trader dynamically hedges over the first two days

ii) Explain the outcome at expiration of the option when the JPM trader closes out all her positions assume i) delivery in the put contract and ii) the put is cash settled.