Function of the share price at expiration

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Reference no: EM132710181

1. You own a put option on a Brambles share with an exercise price of $10. The option will expire in exactly six months' time.

a. If the share is trading at $8 in six months, what will be the payoff of the put?

b. If the share is trading at $23 in six months, what will be the payoff of the put?

c. Draw a payoff diagram showing the value of the put at expiration as a function of the share price at expiration.

2. Assume that you have shorted the put option in Problem 1.

a. If the share is trading at $8 in six months, what will you owe?

b. If the share is trading at $23 in six months, what will you owe?

c. Draw a payoff diagram showing the amount you owe at expiration as a function of the share price at expiration.

Reference no: EM132710181

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