Question

You own both a May 20 call and a May 20 put. If the call finishes in the money, then the put will:

also finish in the money.

finish out of the money.

either finish at the money or out of the money.

finish at the money.

either finish at the money or in the money.

Answer 1

Answer:

Since the pay-offs of long call and puts are opposite hence if call finishes in the money then put will finish out of the money.

If call finish in the money then the Current Stock price > Exercise price, and put will be out of the money when Current stock price > Exercise price.

Put will be in the money when Current Stock price < Exercise price.

At money happens when current stock price = exercise price, and since call has ended in the money so we can eliminate at the money.