Question

Two put options are written on AAPL shares. Both have 6 months before expiry. One put has a strike price of $320 and the other put has a strike price of $340. AAPL share price is currently $350.

Explain why the put with $340 strike will trade at a higher price than the put with $320 strike.

Answer 1

Price of the put options depends on various factors. One of the factor is what is the intrinsic value at the time of purcase or whether the put is in th emoney or out of monet at the time of purchase.

Put is in the money if the stock price is less than the exercise price and put is out of money when the stock price is lesser than the excercise price.

Here both the put option is out of money but put option will $340 is less out of money than putg option with $320. It is nearer to the 350 and it has higher chances of being in profit than $320 out option . Hence the put with $340 strike will trade at a higher price than the put with $320 strike.