A suppose that after three months the price of ibm

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A. Suppose that after three months the price of IBM stock has gone down to $92 per share. The buyer of option will exercise her/his option to sell the stock for $100. Thus, the buyer will purchase the stock for $92 in the market and sell it using the put option for $100. The purchaser of the put option makes a profit B. Suppose that after three months, the price of IBM stock has stayed at $100 per share. The option will expire worthless: that is, the buyer will not exercise her/his right to sell the shares for $100 per share. The purchaser of the option loses the $5 per share premium.
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Put Option Example C. Suppose that after three months, the price of IBM stock has gone up to $110 per share. In this case, the buyer of the put option will not exercise his/her option. The option will expire worthless: that is, the buyer will not exercise his/her right to sell the shares for $100 per share. The purchaser of the option loses $5 per share premium.
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Long Put (Figure 8.2, page 181) Profit from buying a European put option: option price = $5, strike price = $100 30 20 10 0 -5 100 90 80 70 110 120 130 Profit ($) Terminal stock price ($)
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Short Put (Figure 8.4, page 182) Profit from writing a European put option: option price = $5, strike price = $100 -30 -20 -10 5 0 100 90 80 70 110 120 130 Profit ($) Terminal stock price ($)
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The right (but not the obligation) to buy The right (but not the obligation) to sell The potential obligation to sell The potential obligation to buy CALL OPTION PUT OPTION BYUER SELLER
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