Question
You own a put option on Ford stock with a strike price of $14. When you bought the put, its cost to you was $2.
You own a put option on Ford stock with a strike price of $14.
When you bought the put, its cost to you was $2. The option will expire in exactly six months' time.
a. If the stock is trading at $10 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 $26 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.
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