Asked by Zachary Zamborelli on May 11, 2024
Verified
The current market price of a share of CSCO stock is $22. If a put option on this stock has a strike price of $20, the put
A) is out of the money.
B) is in the money.
C) sells for a higher price than if the strike price of the put option was $25.
D) is out of the money and sells for a higher price than if the strike price of the put option was $25.
E) is in the money and sells for a higher price than if the strike price of the put option was $25.
Put Option
An option contract in finance that grants the buyer the privilege to sell a specific amount of an underlying asset at an agreed price, within a designated period, without the necessity to proceed.
Strike Price
The predetermined price at which the buyer of a call option can purchase, or the buyer of a put option can sell, the underlying security or commodity.
Market Price
The present cost at which a service or asset is available for purchase or sale on the public market.
- Acquire an understanding of the distinctions among in the money, at the money, and out of the money options.
Verified Answer
EN
Ethan NobesMay 12, 2024
Final Answer :
A
Explanation :
A put option is considered "in the money" when the strike price is above the current market price, allowing the holder to sell the stock at a higher price than its market value. Since the strike price ($20) is below the current market price ($22), the put option is "out of the money," meaning it would not be profitable to exercise it based on the current stock price.
Learning Objectives
- Acquire an understanding of the distinctions among in the money, at the money, and out of the money options.