Question on Puts exercise, purchase, current, option, price

sweetgirl

The current price of an asset is 100. An out-of-the-money American put option with an
exercise price of 90 is purchased along with the asset. If the breakeven point for this hedge is at an asset price of 114 at expiration, then the value of the American put at the time of purchase must have been:

A. 0.
B. 4.
C. 10.
D. 14.

ftwcfa

I can only think the answer is D looking at the graphs I have drawn. Since the option expire worthless, the Gain from the Share is exactly the option price paid.



Edited 1 time(s). Last edit at Friday, June 5, 2009 at 02:56AM by keelim.