Question
You own a put option on Ford stock with a strike price of $8. When you bought theput, its cost to you was $4. The
You own a put option on Ford stock with a strike price of $8. When you bought theput, its cost to you was $4. The option will expire in exactly sixmonths' time.
a. If the stock is trading at $3 in sixmonths, what will be the payoff of theput? What will be the profit of theput?
b. If the stock is trading at $20 in sixmonths, what will be the payoff of theput? What will be the profit of theput?
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.
d. Redoc, but instead of showingpayoffs, show profits.
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