Asked by Diana Richardson on Jun 03, 2024
Verified
The current market price of a share of Coca Cola stock is $50. If a call option on this stock has a strike price of $45, the call
A) is out of the money.
B) is in the money.
C) sells for a higher price than if the market price of Coca Cola stock is $40.
D) is out of the money and sells for a higher price than if the market price of Coca Cola stock is $40.
E) is in the money and sells for a higher price than if the market price of Coca Cola stock is $40.
Strike Price
The predetermined price at which an option can be exercised, either to buy or sell the underlying asset.
Call Option
A financial contract giving the buyer the right, but not the obligation, to buy an underlying asset at a predetermined price within a specific timeframe.
Market Price
The current price at which an asset or service can be bought or sold in the open market.
- Analyze the profitability and trading strategies associated with different market scenarios for both call and put options.
Verified Answer
TB
Thomas Beorgoh-LewisJun 09, 2024
Final Answer :
E
Explanation :
A call option is "in the money" when the market price of the stock is above the strike price, which is the case here ($50 market price vs. $45 strike price). Additionally, the value of a call option increases as the market price of the underlying stock increases, so it would sell for a higher price than if the stock were at $40.
Learning Objectives
- Analyze the profitability and trading strategies associated with different market scenarios for both call and put options.