Explanation:
The payoff of a put option at expiration is:
P_T = \max(0, X - S_T) = \max(0, \`59 - \42`) = \max(0, \`17) = \
Since the stock price ($42) is below the strike price ($59), the put option is in-the-money. The holder of the put option has the right to sell the stock at the strike price, which is higher than the market price, resulting in a positive payoff of $17. The buyer of a put option profits when the stock price falls below the strike price, hence the payoff is positive $17.
Q.3519 Chris Dunkins bought a put option with a strike of $59. If at expiration the stock is now worth $42, then what is the payoff of the option at expiration?
A
$0 payoff.
B
$17 positive payoff.
C
$17 negative payoff.
D
None of the above.
No comments yet.