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A put option on oil has a strike price of $105 per barrel and a premium...

A put option on oil has a strike price of $105 per barrel and a premium of $2 per barrel. If the current spot price for oil is $100.50 per barrel, what is the correct value for this option. Show the calculation.

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Answer #1

Given that strike price is 105.

If the spot price for oil is 100.5, put option is in the money.

Value of put option (Assuming this is expiry) = Strike price - Spot price = 105-100.5 = 4.5

If this is not expiry put will be priced more than 4.5 for the time decay of option.

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