Asked by sachdeva prince on May 12, 2024
Verified
The current market price of a share of Disney stock is $60. If a put option on this stock has a strike price of $65, the put
A) is out of the money.
B) is at the money.
C) can be exercised profitably.
D) is out of the money and can be exercised profitably.
E) is in the money and can be exercised profitably.
Put Option
A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specific time.
Strike Price
The set price at which the holder of an option can buy (in the case of a call) or sell (in the case of a put) the underlying security or commodity.
Market Price
The going rate for which a commodity or service can be traded or acquired in the market.
- Absorb the definitions of in the money, at the money, and out of the money options.
- Identify factors affecting option pricing and profitability.
Verified Answer
PD
Pawandeep DhillonMay 14, 2024
Final Answer :
E
Explanation :
A put option is 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 the current market value, thus it can be exercised profitably.
Learning Objectives
- Absorb the definitions of in the money, at the money, and out of the money options.
- Identify factors affecting option pricing and profitability.