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Ludmilka [50]
3 years ago
5

The ABC Company expects stock prices to decrease. The current stock price is $96. The company purchases a put option, with exerc

ise price of $93 and a premium of $3 per share. Just before the expiration, stock price rises to $91. Should the investor exercise the put option or not? What will the total payoff per share be?
Business
1 answer:
Talja [164]3 years ago
6 0

Answer:

Payoff = $2 per share.

Explanation:

In a put option, the long (the party that buy the put) will have gain on the option when the underlying asset price is lower than the excercise price of that asset <em>(imagine the advantage that you can sell a chicken at $12 when it market price of is is only 10)</em>.

Because the stock price is $91, lower than exercise price of 93, so the company should exercise the put. Total payoff per share is 93 - 91 = $2.

<em>Note: We dont include premium to buy the put here because the question asking about payoff. We on include premium in calculations when the question is about profit.</em>

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When hope springs purchases refillable bottles for its water, it submits its orders directly from its computer system to its sup
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At the start of football season, the ticket office gets very busy the day before the first game. Customers arrive at the rate of
ipn [44]

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