Question

Question 15 (1 point)

Which of the following statements is correct?

Question 15 options:

	a) A put option is out-of-the-money if spot price is more than strike price
	b) A call option is in-the-money if spot price is less than strike price
	c) A put option is in-the-money if spot price is more than strike price
	d) A call option is out-of-the-money if spot price is more than strike price

Question 16 (1 point)

Suppose the current spot rate for the euro is $1.3527. A put option with an exercise price of $1.3550 is said to be

Question 16 options:

	a) inthemoney
	b) atthemoney
	c) outofthemoney
	d) past breakeven

Answer 1

Answer-

1) Statement A is correct, A put option is out of money if spot price is more than strike price.

Explanation-

Put option is right to sale at strike price to predetermined customer as per agreement.In the given question the option holder has right to sale for a price lower than the market rate,then how will he sale the underlying at a price which is less than the market price.

Lets take a example,

A has option to sale security for $100,where the spot price on the date was $105,Then A will want to sale his security for $105 and not at 100.Hence it can be said option is out of money.

2) The given option is in money,

Because from the rights of option,the option holder can sale his asset for $1.3550 where the market rate for the same is $ 1.3527. From sellinh the asset as per contract he will have benefit of $ 0.0023.Hence it can be said that option is in money.

Please comment for any explanation.

Thanks