Homework Answers
The investor shall make profit when the stock price is less than ($29-$3) i.e. $26. (-$3 is the option premium).
Option would be exercised when the stock price is less than $29. It is so because there shall be a positive payoff and the option has already been bought.
The payoff table is:
| ST: Market price | Payoff | Option Cost | Profit |
| $ 1.00 | $ 28.00 | $ 3.00 | $ 25.00 |
| $ 2.00 | $ 27.00 | $ 3.00 | $ 24.00 |
| $ 3.00 | $ 26.00 | $ 3.00 | $ 23.00 |
| $ 4.00 | $ 25.00 | $ 3.00 | $ 22.00 |
| $ 5.00 | $ 24.00 | $ 3.00 | $ 21.00 |
| $ 6.00 | $ 23.00 | $ 3.00 | $ 20.00 |
| $ 7.00 | $ 22.00 | $ 3.00 | $ 19.00 |
| $ 8.00 | $ 21.00 | $ 3.00 | $ 18.00 |
| $ 9.00 | $ 20.00 | $ 3.00 | $ 17.00 |
| $ 10.00 | $ 19.00 | $ 3.00 | $ 16.00 |
| $ 11.00 | $ 18.00 | $ 3.00 | $ 15.00 |
| $ 12.00 | $ 17.00 | $ 3.00 | $ 14.00 |
| $ 13.00 | $ 16.00 | $ 3.00 | $ 13.00 |
| $ 14.00 | $ 15.00 | $ 3.00 | $ 12.00 |
| $ 15.00 | $ 14.00 | $ 3.00 | $ 11.00 |
| $ 16.00 | $ 13.00 | $ 3.00 | $ 10.00 |
| $ 17.00 | $ 12.00 | $ 3.00 | $ 9.00 |
| $ 18.00 | $ 11.00 | $ 3.00 | $ 8.00 |
| $ 19.00 | $ 10.00 | $ 3.00 | $ 7.00 |
| $ 20.00 | $ 9.00 | $ 3.00 | $ 6.00 |
| $ 21.00 | $ 8.00 | $ 3.00 | $ 5.00 |
| $ 22.00 | $ 7.00 | $ 3.00 | $ 4.00 |
| $ 23.00 | $ 6.00 | $ 3.00 | $ 3.00 |
| $ 24.00 | $ 5.00 | $ 3.00 | $ 2.00 |
| $ 25.00 | $ 4.00 | $ 3.00 | $ 1.00 |
| $ 26.00 | $ 3.00 | $ 3.00 | $ - |
| $ 27.00 | $ 2.00 | $ 3.00 | $ -1.00 |
| $ 28.00 | $ 1.00 | $ 3.00 | $ -2.00 |
| $ 29.00 | $ - | $ 3.00 | $ -3.00 |
| $ 30.00 | $ - | $ 3.00 | $ -3.00 |
As the stock price increased the profit decreases.
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