When does an investor make a profit given the following information? Buy European Put for 3...
When does an investor make a profit given the following information?
| Buy European Put for | 3 |
| Stock Price is Currently | 42 |
| Stock Price is | 40 |
Homework Answers
Stock Price = S = $ 42, Strike = $ 40 and Put Premium (Price) = $ 3
A put option is in the money only when the stock price is below the strike price of the put. Hence, the stock price has to go below $ 40 for the put to be in profit.
If the stock price is $ S, then Net Profit = (40 - S) - Put Premium = (40-S) - 3 = 37 - S
Hence, the position is profitable only when the stock price goes below $ 37.
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When does an investor make a profit given the following
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