Question

The current market price of a share of a stock is $80. If a put option on this stock has a strike price of $75, the put

Group of answer choices:

a)sells for a lower price than if the market price of the stock is $75.

b)is in the money.

c)is in the money and sells for a lower price than if the market price of the stock is $75.

d)is out of the money and sells for a lower price than if the market price of the stock is $75.

e)is out of the money.

Answer 1

Given, Spot price S_t = $80

Strike price X = $75

For put option if current market price or spot price is greater than that of strike price, it implies that the put option is 'Out Of Money'.

For a put option to make a profit it should be in the money the spot price should be lower than $75. Therefore, it sells for a lower price than if the market price of the stock is $75.

So, the answer choice is (f).