Delta stock (DAL) is trading at $11.70 today. Consider an American put option on 1 share of DAL with strike K = 12 and expiration in T = .25 years. The put is selling today for $1.46.
Assume the risk-free rate is 1%. Recall that American options can be exercised at any time by the holder of the option.
(a) You buy one of these puts. You decide to exercise the put right away. What is the payoff from exercising the option (that is, what amount of money do you receive from exercising the option)? What is your profit or loss? Was the exercise a mistake?