Question

The current market price of NTD is $1. A one month European call option on NTD...

The current market price of NTD is $1. A one month European call option on NTD with a strike price of $20 must be worth nothing because its intrinsic value is 0 and it is impossible for the share price to exceed $20 in a month.

A. TRUE

B. FALSE

Justify your choice here in 30 words

Homework Answers

Answer #1

This is false.

This is because the european call option will be valued something because of factors like time to maturity, volatility too.

In this case since there is almost one month left to maturity, the value of call option must be not 0 and a share price can even surpass 20 too in abmormal Financial instances like in case of an ezternality or invention which makes profits go exponential

I hope this helps

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