Question

Draw the payoff picture at expiration for a long position in a put option that has a premium of $3.50 and a strike price of $60.

Answer 1

	Long Position on Put Option
	Strike Price=$60
	Price at Expiration =S
	If S> or =$60.
	Gain on Put option =$0
	If S<$60
	Gain on Put option =(60-S)
	PAYOFF:
	S	A	B	C=A+B
	Price at expiration	Gain/(Loss) on Option	Option Premium	Net Payoff
	$46	$14	($3.50)	$10.50
	$48	$12	($3.50)	$8.50
	$50	$10	($3.50)	$6.50
	$52	$8	($3.50)	$4.50
	$54	$6	($3.50)	$2.50
	$56	$4	($3.50)	$0.50
	$58	$2	($3.50)	($1.50)
	$60	$0	($3.50)	($3.50)
	$62	$0	($3.50)	($3.50)
	$64	$0	($3.50)	($3.50)
	$66	$0	($3.50)	($3.50)
	$68	$0	($3.50)	($3.50)
	$70	$0	($3.50)	($3.50)
	$72	$0	($3.50)	($3.50)
	$74	$0	($3.50)	($3.50)