Chapter 02 · Section 2.1

The horizontal axis on the profit/loss diagram

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

a) the price of the underlying asset at the time the option is purchased.
b) the price of the underlying asset at time of expiration/exercise.
• c) time until expiration.
  No. It would not be possible to make a graph with profit/loss as a function of time until expiration: there is no direct link. If there were one (i.e. if the future were known) there would be no need for an option.
  d) the option premium.
  e) None of the above.

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