PLAN From Eq. 21.2, and the fact that the strike price is $20, we see that the
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PLAN From Eq. 21.2, and the fact that the strike price is $20, we see that the value of the put option is:
EXECUTE Plotting this function gives:
EVALUATE Because the put option allows you to force the put writer to buy the stock for $20, regardless of the current market price, we can see that the put option payoff increases as Oracle’s stock price decreases. For example, if Oracle’s price were $10, you could buy a share of Oracle in the market for $10 and then sell it to the put writer for $20, making a profit of $10.
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Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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