Asked by Jasleen Sekhon on Jun 06, 2024
Verified
June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.
A) $40; $30
B) $30; $40
C) $35; $35
D) $40; $40
Exercise Price
The cost at which an option's holder may purchase (for a call option) or sell (for a put option) the base asset.
Put Option
A financial contract giving the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a set price within a specified time.
- Familiarize oneself with the fundamentals and operational aspects of options (call and put) within financial markets.
Verified Answer
JM
Jessica ModestoJun 09, 2024
Final Answer :
B
Explanation :
For the call option, the higher the exercise price, the less valuable it is because it becomes less likely to reach that price. Therefore, the $30 call option will have the greatest value as it is more likely to be reached.
For the put option, the opposite is true - the lower the exercise price, the less valuable it is because it becomes less likely to fall below that price. Therefore, the $40 put option will have the greatest value as it is more likely to fall below that price.
Therefore, the answer is choice B.
For the put option, the opposite is true - the lower the exercise price, the less valuable it is because it becomes less likely to fall below that price. Therefore, the $40 put option will have the greatest value as it is more likely to fall below that price.
Therefore, the answer is choice B.
Learning Objectives
- Familiarize oneself with the fundamentals and operational aspects of options (call and put) within financial markets.