Question

A Put option with a strike price of $60 on a stock trading at $50 and...

A Put option with a strike price of $60 on a stock trading at $50 and expiring in one month’s time:

A. has zero time value

B. has zero intrinsic value

C. would trade for $10 in the options market

D. is in-the-money

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Homework Answers

Answer #1

Put option is the right to sell a specified share at a specified price in future

Option premium has two components - Intrinsic value and time value

Intrinsic value = Strike price - market price

= $60-$50

= $10

Since the option is exercisable after one month, time value will not be zero. It will have some value

Hence. options premium will be more than $10

in the money option means that the option will be exercised.

Hence, the answer is D. is in-the-money

since strike price is greater than market price

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