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you would expect the price quote to be at least $10 if the put had an...

you would expect the price quote to be at least $10 if the put had an exercise price of $40 and the underlying stock was selling for $50.

true or false

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Answer #1

The payoff of Put option = Max (Exercise price - underlying stock price, 0)

In this case, the underlying price is higher than the exercise price. Hence there will be 0 payoff in this option.

Also, This option is significantly out of the money (out of money by $10).

Hence there won't be any buyer at such a higher price. Hence you would not expect the price quote to be at least $10.

This statement is false.

Please let me know in case you have any queries and I will be happy to assist you.

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