Problem:
Joe purchased a stock index fund at $1200 per share. To protect his loss, he also purchased an at-the-money European put option on the fund for $60 with 3 month time to expiration. Sally purchased the stock index at the same time asJoe but she purchased an European put option with strike price of $1170, which only costs $45.
Required:
Question 1: When would Joe be able to break even?
Question 2: When would Joe's and Sally's profits be the same?
Question 3: When would Sally outperform Joe?
Note: Please provide equation and explain comprehensively and give step by step solution.