Assume that put options on the shares of Orion Plc have an Exercise Price of E=400p per share and expire on 30 September 2020. Suppose that an investor buys put options on 1,000 shares paying a premium (put option price) of 20p each.
(a) Explain how to obtain the investor's payoff at expiry for each of the following ranges of Orion's share price (Sr) and illustrate in a diagram for 1 put option.
(i) Share price ST >400p;
(ii) Share price ST-400p;
(b) What is the breakeven share price for each put option?
(iii) 290p
(c) Calculate investor's total profit or loss from buying 1000 put options if the share price at expiry is
350p.
