On 10 May an investor sells a six-month put option on 1,000 shares of a stock. The current stock price $39 and the exercise price of the put option is $40. The price of the put option is $2.30 per share. At expiration date on 10 November, the stock price is $36.90. The option is cash settled.

(a) What is the cash flow of the investor on 10 May?

(b) What is the payoff on the option on 10 November?

(c) What is the investor's profit/loss on the option trade?

Answer rating: 100% (QA)

a The cash flow of the investor on 10 May is the premium received for selling the put op... View the full answer