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Obtain the investor''s payoff at expiry

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Assume that put options on the shares of ABC plc are traded with a strike price of X=200p per share, expiring on 30 June 2014. Suppose that an investor buys put options on 1,000 shares at a premium (option price) of 10p each (i.e. the investor pays £100=1,000 x 10p forthe options). Ignoring transaction costs, explain how to obtain the investor's payoff atexpiry for each of the following ranges of ABC's share price and illustrate in a diagram.

Reference no: EM132502451

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