e that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.
e that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Assume that Sara gets into a short European put option to sell one share of stock Y for $66 that costs $7 and is held until maturity. Under what circumstances will Sara, the seller of the option (the party with the short position), make a profit? Under what circumstances will the option be exercised (from long position perspective)? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.
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A put option is an instrument which provides its holder an option to sell an underlying asset on a future date at a predetermined price.
A put option holder has no obligation to sell the asset i.e he may or may not exercise the option. While put option seller has obligation to fulfill the contract if option is exercised.
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