Question

if an option buyer paid $10 for a put option with an exereice price of x=$69.the option is in-the-money, and the payoff=$8. what would be the price of the underlying asset?

Answer 1

Given

Put option price = 10$

Excercise Price = 69$

Payoff = 8$

A put option is considered to be in the money when current market price of an underlying asset is less than strike price of the put option.

Maximum of {(Excercise Price - Stock Price), 0}* Lot* quantity per lot = Payoff

Since no information is given lets assume lot and quantity = 1

Maximum of {(69 - Stock Price), 0}* 1* 1 = 8

To get 8$ as payoff, we need to take stock price as 61$

Maximum of {(69 - 61), 0} = 8

Maximum of {8,0} = 8

Hence the price of underlying asset = 61$