FREE Trial

The price of a stock is $29. A put option to sell that stock at $30 is

Question:

The price of a stock is $29. A put option to sell that stock at $30 is currently selling for $3. You buy the stock and the put. Complete the following table and answer the questions.

The price of a stock is $29. A put option

a. What is the maximum possible profit on the position?
b. What is the maximum possible loss on the position?
c. What is the range of stock prices that generates a profit?
d. What advantage does this position offer?

Transcribed Image Text:

Price of the stock $20 25 30 35 40 50 Profit on stock Profit on put Net profit

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 53% (13 reviews)

This problem illustrates one of the most important uses for an option the prot...View the full answer


answer-question-section
Answered By
tutor-profile-image
WAHIDUL HAQUE
hello, I'm a professional academic solution provider working as a freelance academic solution provider since 7 years. I have completed numerous projects. Help lots of students to get good marks in their exams and quizzes. I can provide any type of academic help to your homework, classwork etc, if you are a student of Accounting, Finance, Economics, Statistics. I believe in satisfying client by my work quality, rather than making one-time profit. I charge reasonable so that we make good long term relationship. why will you choose me? i am an extremely passionate, boldly honest, ethically driven and pro-active contractor that holds each of my clients in high regards throughout all my business relations. in addition, I'll always make sure that I'm giving my 100% better in every work that will be entrusted to me to be able to produce an outcome that will meet my client's standards. so if you are a student that is now reading my profile and considering me for your academic help. please feel free to look through my working history, feedback and contact me if you see or read something that interests you. I appreciate your time and consideration. regards
4.90+ 233+ Reviews 368+ Question Solved
Related Book For  book-img-for-question
Basic Finance An Introduction to Financial Institutions Investments and Management

Basic Finance An Introduction to Financial Institutions Investments and Management

ISBN: 978-1111820633

10th edition

Authors: Herbert B. Mayo

See More Books
Question Posted:
See More Questions

Related Video

A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

Students also viewed these Accounting questions

Word Wisdom Wealth Inspirational Words Of Wisdom For Economics Meltdown 1st Edition - ISBN: B0CRN4RMPP - Free Book