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Stock A has a volatile price history, and Stock B has a stable price history. Stock...

Stock A has a volatile price history, and Stock B has a stable price history. Stock A and Stock B are both trading at $25 per share. Which of the following 1-month options should sell for the highest price?

a) A call option on Stock A with a $30 exercise price.

b) A call option on Stock B with a $30 exercise price.

c) A put option on Stock A with a $30 exercise price.

d) A put option on Stock B with a $30 exercise price.

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Answer #1

Call option is the right to buy the underlying asset at a specified price

Put option is the right to sell the underlying asset at a specified price

The price of option is higher for the more volatile stock as it contains higher risk

The Strike price is $30 and current price is $25

Hence, the put premium will be higher as it is clearly giving advantage to the option holder

Hence, the option with highest selling price will be

c) A put option on Stock A with a $30 exercise price.

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