A price of a certain stock is $98.00 per share. A put option is available at an exercise price $100 per share with 40 days to maturity. There currently is a Treasury bill which has a price per dollar of face of .9800. Suppose an investor purchases 100 shares of the security and also buys a put above.
a. Draw and explain the “profit profile” (net profit for all possible values of the underlying security price) on the investor’s position after 40 days.
b. How does the profit profile compare with purchasing a call on underlying security at the same exercise price and maturity?