Problem:
We buy a put option. Its premium is $4 and the strike price is $44. The current market price is $50. If the price drops to $35, shall we exercise the put option? If not, why not, and If yes, why yes? Assume that we buy the stock at $30. Compare the two cases of owning the stock versus not owning it in terms of rate of return the investor makes.
Note: Show all workings.