A particular put is the option to sell stock at $40. It expires after three months and currently sells for $2 when the price of the stock is $42.
Required:
1) If an investor buys the put, what will the profit be after three months if the price of the stock is $45, $40, $35?
2) What will the profit from selling this put be after three months if the price of the stock is $45, $40, $35?
3) Compare the answers to a) and b). What is the implication of the comparison?
Describe in detail.