Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You own a put option on Ford stock with a strike price of $11. When you bought the put, its cost
to you was $7. The option will expire in exactly six months' time.
a. If the stock is trading at $4 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 $24 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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Transcribed Image Text:You own a put option on Ford stock with a strike price of $11. When you bought the put, its cost to you was $7. The option will expire in exactly six months' time. a. If the stock is trading at $4 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 $24 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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