You want to value a put option with an exercise price of $80 and one year to expiration. The underlying stock pays no dividends, its current price is $80, and you believe it can increase to $100 or decrease to $60. The risk-free rate of interest is 0%. We value this put using three approaches.

Approach 1: Lets value the put option using the replication approach. We replicate the payoff of one put by short-selling stocks and investing in bonds.

1. How many shares of stocks do you need to short sell?
2. How much do you need to invest in bonds?
3. What is the price of the put?