You own a put option on Ford stock with a strike price of

$12.

When you bought the put, its cost to you was

$4.

The option will expire in exactly six months' time.

a. If the stock is trading at

$7

in six months, what will be the payoff of the put? What will be the profit of the put?

b. If the stock is trading at

$25

in six months, what will be the payoff of the put? What will be the profit of the put?

c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.

d. Redo c, but instead of showing payoffs, show profits.