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Today’s share price of Apple is $120
Today’s share price of Apple is $120. You think Apple’s stock will fall over the next 3 months.
Today you observe the following option prices (all expiring in 3 months):
Option 1: Put Option Premium = $4; with a Strike Price = $110
Option 2: Put Option Premium = $2; with a Strike Price = $100
17. Which of these options is in-the-money today? A) Both
B) Neither
C) Only Option 1
D) Only Option 2
Expert Solution
Put Option:
Holder of Put option will have right to sell underlying asset at the agreed price ( Strike Price). As he is receiving right, he needs to pay premium to writer of Put option. Holder of put option will exercise the right, when expected future spot price < Strike Price. Then writer of option has obligation to buy at the strike Price. Holder will go for put option, if he is bearish.
If the Future SPot Price < Strike Price - In the Money
If the Future SPot Price = Strike Price - At the Money
If the Future SPot Price > Strike Price - Out of the Money
Today StockPrice = $ 120
STrike Price of Option 1 = $ 110
Strike Price of option 2 is $ 100
If Strike Price > Stock Price, Put option will be at" In the Monry Position".
Hence Neither Option is "In the Position" today.
Option B is correct.
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