Under what circumstances will the option be exercised

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Reference no: EM132005539

Suppose that a European put option to sell a share for $20 costs $3 and is held until maturity.

A)Under what circumstances will the seller of the option (the party with the short position) make a profit?

Under what circumstances will the option be exercised?

Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.

Draw a diagram illustrating how the profit for the holder of the option, from a long position in the option, depends on the stock price at maturity of the option.

Reference no: EM132005539

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