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", "metadata": {"licence": "Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International", "description": "Financial maths. Determine the break even price of a call option. And whether to use the option or not given a market price."}, "advice": "

a)

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You have already bought the put option which cost $\\var{premium}$ (the premium), which gives you the right, but not the obligation, to sell shares at the exercise price of $\\$\\var{exercise}$. The shares are currently selling at$\\$\\var{share}$ in the market.

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The value of the put option will be what you can get using the option minus what the share is worth minus what you have already paid.

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In our situation, we have

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\\begin{align}\\text{value}&=\\var{exercise}-\\var{share}-\\var{premium}\\\\&=\\var{tempvalue}\\end{align}

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Since this is a negative number, exercising the option would not be an advantage, you would not use it, the option is worthless in this situation.

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Therefore, the put option is worth $\\$\\var{value}$\n \n b) \n You have already bought the put option which cost$\\var{bpremium}$(the premium), which gives you the right, but not the obligation, to sell shares at the exercise price of$\\$\\var{bexercise}$. The shares are currently selling at $\\$\\var{bshare}$in the market. \n \n The value of the put option will be what you can get using the option minus what the share is worth minus what you have already paid. \n In our situation, we have \n$\\begin{align}\\text{value}&=\\var{bexercise}-\\var{bshare}-\\var{bpremium}\\\\&=\\var{btempvalue}\\end{align}$\n Since this is a negative number, exercising the option would not be an advantage, you would not use it, the option is worthless in this situation. \n Therefore, the put option is worth$\\$\\var{bvalue}$

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bshare

Suppose you have bought a put option with an exercise price of $\\$\\var{exercise}$per share and a premium of$\\$\\var{premium}$ per share. If the current market price is $\\$\\var{share}$per share, then what is the value of the put option? \n$\\$$[[0]] \n Note, if it is not an advantage to exercise the put option, then it is currently worthless. ", "scripts": {}, "customName": "", "customMarkingAlgorithm": "", "variableReplacementStrategy": "originalfirst", "sortAnswers": false, "marks": 0}, {"unitTests": [], "gaps": [{"allowFractions": false, "unitTests": [], "scripts": {}, "useCustomName": false, "variableReplacements": [], "minValue": "bvalue", "type": "numberentry", "extendBaseMarkingAlgorithm": true, "showFeedbackIcon": true, "showFractionHint": true, "customName": "", "notationStyles": ["plain", "en", "si-en"], "correctAnswerStyle": "plain", "maxValue": "bvalue", "mustBeReducedPC": 0, "mustBeReduced": false, "customMarkingAlgorithm": "", "variableReplacementStrategy": "originalfirst", "correctAnswerFraction": false, "marks": 1, "showCorrectAnswer": true}], "useCustomName": false, "variableReplacements": [], "showCorrectAnswer": true, "type": "gapfill", "extendBaseMarkingAlgorithm": true, "showFeedbackIcon": true, "prompt": " Suppose you have bought a put option with an exercise price of \\\\var{bexercise} per share and a premium of \\\\var{bpremium} per share. If the current market price is \\\\var{bshare} per share, then what is the value of the put option? \n \\$$ [[0]]

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Note, if it is not an advantage to exercise the put option, then it is currently worthless.

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