You own a put option on Ford stock with a strike price of $10. The option will expire in exactly six months’ time.
a. If the stock is trading at $8 in six months, what will be the payoff of the put?
b. If the stock is trading at $23 in six months, what will be the payoff of the put?
c. Draw a payoff diagram showing the value of the put at expiration as a function of the stock price at expiration.