Suppose John purchases a stock from $36 and at the same time he also purchases a put option (with anexpiration date of 6 months) that has a strike price of $35. The put option is currently selling for $2.
(a) What is the option strategy that John has decided to employ? What would be the reason John wouldwant to employ this strategy?
(b) What is John’s profit (or loss) from the option strategy if the price of the stock is $30, $35 or $40 in 6months? At what price of the stock will John break even?
(c) What is the maximum potential loss and maximum potential profit from this option strategy?