Problem:
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:
Question 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?
Question 2: What will the profit from selling this put be after three months if the price of the stock is $45? $40? $35?
Question 3: Compare the answers to a) and b). What is the implication of the comparison?
Note: Please explain comprehensively and give step by step solution.