Chapter 02 · Section 2.1

Vertical axis on the profit/loss diagram

On the profit/loss diagram, the vertical axis represents:

• a) the price of the underlying asset at the time the option is purchased.
  No. First of all, the price of the underlying asset cannot be negative. Furthermore, we are interested in the price at expiration or exercise, not at the time of purchase.
  b) the exercise price.
  c) the closing price of the option.
  d) the option holder's profit or loss.
  e) the option writer's profit or loss.
  f) None of the above.

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