Asked by precious edwards on Jun 06, 2024
Verified
The current market price of a share of CSCO stock is $75. If a put option on this stock has a strike price of $70, the put
A) is out of the money.
B) is in the money.
C) sells for a higher price than if the market price of CSCO stock is $70.
D) is out of the money and sells for a higher price than if the market price of CSCO stock is $70.
E) is in the money and sells for a higher price than if the market price of CSCO stock is $70.
Put Option
A contractual financial arrangement allowing the option holder to sell a designated quantity of an underlying asset at a fixed price before a certain deadline, without any compulsory action.
Strike Price
The fixed price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.
Market Price
The existing rate at which a good or service is available for buying or selling.
- Understand the concepts of in the money, at the money, and out of the money options.
Verified Answer
HS
Harwinder SinghJun 11, 2024
Final Answer :
A
Explanation :
A put option is considered "in the money" when the strike price is above the market price of the stock. Since the market price ($75) is higher than the strike price ($70), the put option is "out of the money."
Learning Objectives
- Understand the concepts of in the money, at the money, and out of the money options.