Call options with strikes of $30,$35,and $40 have option premiums of $1.50,$1.70,and $2.00,respectively.Using strike price convexity,which option premium,if any,is not possible?
A) C (30)
B) C (35)
C) C (40)
D) All are possible

Question

Quizplus · Accepted Answer

Strike price convexity implies that option premiums should increase at an increasing rate as the strike price increases. Since the option premium for the $35 strike is less than the average of the option premiums for the $30 and $40 strikes, it is not possible.

Call Options with Strikes of $30,$35,and $40 Have Option Premiums