Question

Suppose a June put option on a stock with a strike price of $60 costs $4 and is held until June. Under what circumstance will the holder of the option make again? Under what circumstance will the option be exercised? Draw a diagram showing how the profit on a short position in the option depends on the stock price at maturity of the option.

NB: show data for the graph, please. i need to know how it was gotten so as to recognize my mistake

Answer 1

Put option is a financial derivative which gives a right to sell (not impose obligation) underlying assets at pre-determined price (strike price) on maturity date.

In given case,

Put strike price = $60

Cost of Put = $4

Put option holder will make profit when price of underlying asset is less than strike price plus cost of put on exercise date of put option.

Put option will be exercised when price of underlying asset is less than strike price exercise date of option.

A diagram showing how the profit on a short position in the option depends on the stock price at maturity of the option.

A B C D E F G H I J K Put Strike Price Put cost $60.00 $4.00 Profit/Loss on Put Short Position $10.00 $5.00 $0.00 $0.00 $20.00 $40.00 $60.00 Asset price on maturity $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 $65.00 $70.00 $75.00 $80.00 $85.00 $90.00 $95.00 $80.00 $100.00 Profit/Loss on Put Short Position -$21.00 -$16.00 -$11.00 -$6.00 -$1.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 $4.00 -$5.00 Profit/Loss $10.00 $15.00 $20.00 $25.00 Price on maturity

Cell reference -

А в 60 Put Strike Price Put cost Asset price on maturity Profit/Loss on Put Short Position Profit/Loss on Put Short Position $10.00 40 $5.00 50 $0.00 $0.00 60 $20.00 $40.00 $60.00 $100.00 $80.00 =-MAX($C$2-36,0)+$C$3 =-MAX($C$2-B7,0)+$C$3 =-MAX($C$2-B8,0)+$C$3 =-MAX($C$2-B9,0)+$C$3 =-MAX($C$2-B10,0)+$C$3 =-MAX($C$2-B11,0)+$C$3 =-MAX($C$2-B12,0)+$C$3 =-MAX($C$2-B13,0)+$C$3 =-MAX($C$2-B14,0)+$C$3 =-MAX($C$2-B15,0)+$C$3 =-MAX($C$2-B16,0)+$C$3 =-MAX($C$2-B17,0)+$C$3 =-MAX($C$2-B18,0)+$C$3 -$5.00 70 Profit/Loss -$10.00 80 -$15.00 -$20.00 -$25.00 Price on maturity

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.