A call option gives the option holder the right to sell an asset at a fixed price during a particular period. The fixed price that the asset may be sold at is called the exercise price. The following table shows the options quotation in U.S. dollars for Parrot Transport Corp. for June 30 of this year. Call - Last Quote Put - Last Quote Option Closing Price Strike Price September September 1 $48.50 $52.50 $5.00 $5.50 2 $48.50 $43.50 $7.50 $3.00 3 $48.50 $54.50 $4.00 $6.50 If you could exercise the options listed anytime on or before the expiration date (the third Friday of September), then these options would be European options. Assume that the options listed in the table are American options. Which of the put options for Parrot Transport Corp. listed in the table are in-the-money on June 30? O Option 1 and option 3 Only option 2 All of the options None of the options The Parrot Transport Corp. stock was selling at $50 per share on the first day of this month. • If you had a call option on the first of the month • If you had a put option on the first of the month with an exercise price of $45 and if the option with an exercise price of $45 and if the option
A call option gives the option holder the right to sell an asset at a fixed price during a particular period. The fixed price that the asset may be sold at is called the exercise price. The following table shows the options quotation in U.S. dollars for Parrot Transport Corp. for June 30 of this year. Call - Last Quote Put - Last Quote Option Closing Price Strike Price September September 1 $48.50 $52.50 $5.00 $5.50 2 $48.50 $43.50 $7.50 $3.00 3 $48.50 $54.50 $4.00 $6.50 If you could exercise the options listed anytime on or before the expiration date (the third Friday of September), then these options would be European options. Assume that the options listed in the table are American options. Which of the put options for Parrot Transport Corp. listed in the table are in-the-money on June 30? O Option 1 and option 3 Only option 2 All of the options None of the options The Parrot Transport Corp. stock was selling at $50 per share on the first day of this month. • If you had a call option on the first of the month • If you had a put option on the first of the month with an exercise price of $45 and if the option with an exercise price of $45 and if the option
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 1BIC
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Transcribed Image Text:The Chicago Board Options Exchange (CBOE) is one of the world's largest options exchanges. CBOE and other options
exchanges trade contracts that give buyers and sellers the right to trade investment assets at a specific price within a
specific time period.
А
call
option gives the option holder the right to sell an asset at a fixed price during a particular period. The fixed
price that the asset may be sold at is called the exercise price.
The following table shows the options quotation in U.S. dollars for Parrot Transport Corp. for June 30 of this year.
Call
Last Quote
Put - Last Quote
Option
Closing Price Strike Price
September
September
1
$48.50
$52.50
$5.00
$5.50
$48.50
$43.50
$7.50
$3.00
3
$48.50
$54.50
$4.00
$6.50
If
you could exercise the options listed anytime on or before the expiration date (the third Friday of September), then
these options would be
European
options.
Assume that the options listed in the table are American options. Which of the put options for Parrot Transport Corp.
listed in the table are in-the-money on June 30?
Option 1 and option 3
Only option 2
All of the options
None of the options
The Parrot Transport Corp. stock was selling at $50 per share on the first day of this month.
If you had a call option on the first of the month
If you had a put option on the first of the month
with an exercise price of $45 and if the option
with an exercise price of $45 and if the option
also expires on the first, the value of the option
also expires on the first, the value of the option
Transcribed Image Text:Option 1 and option 3
Only option 2
All of the options
None of the options
The Parrot Transport Corp. stock was selling at $50 per share on the first day of this month.
If
you had a call option on the first of the month
If you had a put option on the first of the month
with an exercise price of $45 and if the option
with an exercise price of $45 and if the option
also expires on the first, the value of the option
also expires on the first, the value of the option
would be
$0
would be
$5
• If the call option expires in six months, the value
If the put option expires in six months and the
of the option is likely to be
higher
than the
market expects the stock price to decrease, the
difference in the stock price and exercise price of
value of the option is likely to
increase
the call option at expiration.
Now suppose you have another call option and a put option. The selling price of Parrot's stock is $50 per share on the
first day of this month and the exercise price for both the call and put options is $60.
If the exercise price of the call option is $60 and
If the exercise price of the put option is $60 and
the option expires on the first, the value of the
the option expires on the first, the value of the
option is
$10
option is
$0
• If the call option expires in six months and the
• If the put option expires in six months and the
market expects the stock price to increase, the
market expects the stock price to increase, the
value of the call option is likely to
decrease
value of the put option is likely to
increase
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