Question & Answer: Q1. A trader buys a IBM put on a share for $3. The stock price is $42 and the strike price is $40. U…..

Question & Answer: Q1. A trader buys a IBM put on a share for $3. The stock price is $42 and the strike price is $40. U..... 1

Q1. A trader buys a IBM put on a share for $3. The stock price is $42 and the strike price is $40. Under what circumstances will the option be exercised? Under what circumstances does the trader make a profit?

Expert Answer

 

The put option will be exercised when the stock price falls below the strike price.
The trader will make a profit when stock price is less than $37
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