A put option on Acer stock currently has a price of $2, a strike price of $40 and an expiration date in 30 days. If Ms. Jordan buys a share of Acer stock at $40 and a put option contract on Acer stock, plot the profit (Y axis) of this combined position against the stock price (P; X axis). Show all the calculations and key points. Comment on the result.
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The details have been given as:
Strike price of option = $40
Price of put option = $2
Purchase price of stock = $40.
There are three options upon expiration:
• The closing price is less than $40
• The closing price stays at $40
• The closing price is more than $40....
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