Why are options being sold at prices higher than their strike value?

Q: How do margin trades magnify both the upside potential and the downside risk of an investment…

A: Margin trades refer to the trades in which an investor does not need to pay the full amount to take…

Q: If the market price for an option is lower than what the value is from using the binomial model what…

A: Options are contracts that provide the buyer the right, but not the responsibility, to buy or sell a…

Q: What is Lump-sum cash-value option?

A: The option is the contract with two or more options for the financial instrument. The lump-sum cash…

Q: How is the call option price impacted by varying the risk free rate of interest? How is the call…

A: 1) Call option is the contract according to which the buyer of the option has the right but not the…

Q: options contracts

A: An option contract illustrates a two-party agreement that authorises a transaction on a certain…

Q: In a qualitative analysis, what factors affect the value of a real option?

A: An alternate choice that is accessible to the organization's managers taking investment…

Q: What effect does Time expiration have on call option price?

A: Time to Expiration in derivatives is the last day that the options or futures are valid. On or…

Q: Define a call option’s exercise value. Why is the actual market price of a call optionusually above…

A: Option contracts are the financial derivative instruments which gives the right but not obligation…

Q: What does market equilibrium mean? If equilibrium does not exist, how will it be established?

A: Introduction: Market equilibrium is nothing but that the marginal investors assume all shares are…

Q: The value of real option calculated using volatility of revenue of the real option in the presence…

A: As per the honor code, we’ll answer only one question at a time, we have answered the first question…

Q: the higher the strike price the intrinsic value of a put option and the the the premium you are…

A: Correct answer is (d) higher, higher

Q: Why do options typically sell at prices higher than their exercise values?

A: An asset produced by stock exchanges is a financial option. These are sold by investors and…

Q: Explain Price Return Swap?

A: A derivative contract which enables two parties to exchange financial instruments, cash flows,…

Q: Explain the following terms, Option price and Strike price

A: Option price and strike price are essential terms which are used in derivative markets. These are…

Q: Why do you think the most actively traded options tend to be the ones that are near the money?

A: Near the money is an option contract in which strike price is almost equal or close to the current…

Q: Define Black-Scholes option pricing model

A: Assumptions of Black-Scholes option pricing models: There is no dividend during the lifetime of the…

Q: What are the recommended options strategies when you expect the market has extreme (high)…

A: We have four basic option strategies: buy call, buy put, write call, and write put, because there…

Q: What is market risk premium?

A: Market risk premium is an additional return investor will receive for holding the additional risk in…

Q: did hedging reduce volatility of the realized price?Answer Yes or No and explain

A: Hedging can be referred as a strategy that is used by the investors to reduce the risk associated…

Q: To what extent does investor mood explain price fluctuations? Explain

A: Investor:- A person or other entity (such as a company or mutual fund) who invests money in the…

Q: What is the payoff to call option buyer and seller?

A: Call option A call option is referred to as the financial contract which provides its holder an…

Q: How much does it cost to hold (i.e., buy) a call-USD option? Use the Garman Kohlhagen model.

A: WE will first calculate d1 and d2 as follows:

Q: What are the assumptions of Option-pricing models?

A: There are two option pricing models they are: Binomial model option pricing model Black Scholes…

Q: What are some factors that affect a call option’s value?

A: Options are the strategies opted by investors in which investors have a right but not a commitment…

Q: Should the bid be lower than the ask for a market maker or a price taker? Explain

A: Market makers are a class of market participants who are willing to buy and sell securities at…

Q: What must be the price of a put option with the same strike price and expiration?

A:

Q: Why do options sell at prices higher than their exercise values?

A: Options are contracts that give an 'option' or a choice to the holder to exercise the option or to…