Asked by Kylee Israelsen on May 05, 2024
Verified
The current market price of a share of CSCO stock is $22. If a call option on this stock has a strike price of $20, the call
A) is out of the money.
B) is at the money.
C) sells for a higher price than if the market price of CSCO stock is $21.
D) is out of the money and sells for a higher price than if the market price of CSCO stock is $21.
E) is in the money and sells for a higher price than if the market price of CSCO stock is $21.
Strike Price
The predetermined price at which the holder of an option can buy or sell the underlying asset.
Call Option
A financial contract giving the buyer the right, but not the obligation, to purchase a stock, bond, commodity, or other asset at a specified price within a specific time frame.
Market Price
The current price at which a good or service can be bought or sold in the open market.
- Conduct an assessment of profit prospects and trading strategies relevant to different market environments for call and put options.
Verified Answer
LS
Lauren SilvaMay 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 ($22 > $20). Additionally, the value of a call option increases as the underlying stock's price increases, so it would sell for a higher price when the market price is $22 compared to $21.
Learning Objectives
- Conduct an assessment of profit prospects and trading strategies relevant to different market environments for call and put options.