Asked by Julian Jones on May 06, 2024
Verified
The current market price of a share of IBM stock is $76. If a put option on this stock has a strike price of $80, 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
An agreement in finance allowing the owner to sell a certain quantity of an underlying asset at a set price during a specific period, without being compelled to do so.
Strike Price
The pre-determined price at which the holder of an option can buy (in the case of a call option) or sell (in case of a put option) the underlying asset.
Market Price
The prevailing selling or buying price of a service or asset in the market.
- Comprehend the principles behind in the money, at the money, and out of the money options.
- Pinpoint the determinants impacting the cost and financial success of options.
Verified Answer
RN
Rylan NordbeckMay 11, 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. Since the strike price ($80) is above the current market price ($76), the put option can be exercised profitably.
Learning Objectives
- Comprehend the principles behind in the money, at the money, and out of the money options.
- Pinpoint the determinants impacting the cost and financial success of options.