You are an equity portfolio manager who holds shares of Hi-Flier, Inc., which currently has a market price of $96/share. You are concerned the stock may fall over the next few months and you decide to examine 3-month put options on this stock. You observe the following prices: Draw a graph of the (i) the payout profile of the $98 strike put option at expiration and (ii) the approximate valuation curve this put option today. Identify the scale along the X-axis.

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Strike Price 90 92 94 95 96 97 98 99 100 Calls 8.70 7.15 5.88 5.30 4.75 4.22 3.72 3.25 2.80 Puts 2.60 3.18 3.88 4.28 4.74 5.25 5.81 6.40 7.02 Strike Price 90 92 94 95 96 97 98 99 100 Calls 8.70 7.15 5.88 5.30 4.75 4.22 3.72 3.25 2.80 Puts 2.60 3.18 3.88 4.28 4.74 5.25 5.81 6.40 7.02

Answer rating: 100% (QA)

To draw the payout profile of the 98 strike put option at expiration we can create a simple profitlo... View the full answer