Question

**An American put option on a share of stock is more
likely to be exercised early if**

Group of answer choices

The underlying stock has high volatility.

The underlying stock price is equal to the strike price of the option.

The underlying stock price is much higher than the strike price of the option.

The underlying stock price is much lower than the strike price of the option.

Answer #1

An American put option on a share of stock is more likely to be
exercised early if **the underlying stock price is much lower
than the strike price of the option**

An American option can be exercised anytime before maturity. A put option gives its owner the right to sell the underlying asset at a predecided price called the strike price before maturity. However, if the underlying stock price is much lower than the strike price, the owner will be able to sell the stock at a price greater than the current stock price. Hence exercising the option will be profitable for the option owner.

**Answer -> The underlying stock price is much lower
than the strike price of the option (4th option)**

An American call option on a share of stock is never
exercised early if
Group of answer choices
The underlying stock has low volatility.
The underlying stock does not pay dividends
The risk-free rate is zero.
The underlying stock pays large dividends.

An American put might be exercised early even when there are no
dividends on the underlying stock.
True
False

1.
American put option price increase if time to expiration gets
extended.
True
or
False
2. American put option price will increase if risk free rate
decrease.
True
or
False
3. American put option price increase if volatility of
underlying stock price goes down.
True
or
False
4. For a non dividend paying underlying stocks, american call
options can be more expensive than european call options that are
equal in other terms.
True
or
False

The European put price plus the stock price must be __________
(lower, equal, or higher) the European call price plus the
__________ (present or future) value of the strike price.
3.A European put option is always worth _______________ (less
than, equal, or more than) the present value of the strike price. A
European call option is always worth ________________ (less than,
equal, or more than) the stock price. An American call option is
always worth ______________ (less than, equal, or...

It is well-known that an American call option written on
non-dividend paying stock shouldn’t be exercised early. Please
explain why an American futures call might ever be worth exercising
early, even if the underlying stock of the futures doesn’t pay any
dividend. (Hint: what is the risk neutral probability for pricing
future option, and what is the risk neutral probability for pricing
a stock option where the stock is dividend paying?)

A small finance company buys a European put option on Facebook
stock. The option price is $20 with a strike price of $250. The
option will expire in three months while the current spot price of
Facebook stock is $226.
a. Does the finance company have the financial right or
obligation to sell or buy the underlying share on the maturity day
of the option? Please briefly explain your answer.
b. If the spot price of Facebook share is $230...

Use the result in equation (15.17) to determine the value of a
perpetual American put option on a non-dividend-paying stock with
strike price K if it is exercised when the stock price equals H
where H < K. Assume the current stock price S is greater than H.
What is the value of H that maximizes the option value? Deduce the
value of a perpetual American put with strike price K.
15.17
f = Q (S/H)^(-2r/sigma^2)

An investor buys a put option on a share for $4.The stock price
is $45 and the strike price if $40.Explain under what circumstances
the investor makes a profit and under what circumstances will the
option be exercised. Sketch a diagram showing the variation of the
investor's profit with the stock price at the maturity of the
option. (Please explain the answer in detail, thank you)

True or false: It is never optimal to exercise an
American put option (on a non-dividend paying
stock) early.
Group of answer choices
True
False

There is an American put option on a stock that expires in two
months. The stock price is $82, and the standard deviation of the
stock returns is 67 percent. The option has a strike price of $90,
and the risk-free interest rate is an annual percentage rate of 6
percent. What is the price of the option?

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