In June 2020, an investor buys a put option on Genentech stock with an exercise price of $75 and expiring in January 2022. If the stock price in July 2020 is $80, then this option is
I.in-the-money
II.out-of-the-money
III.a LEAPS option

Question

Quizplus · Accepted Answer

A put option gives the holder the right to sell the underlying asset at a specified price (exercise price) before the option expires. If the current stock price is above the exercise price ($80 vs. $75), the put option is out-of-the-money (OTM) because it would not make sense to sell the stock at the lower exercise price when it could be sold at a higher price in the market. A LEAPS (Long-term Equity AnticiPation Securities) option is a publicly traded option that has a longer time until expiration than traditional options, typically more than one year. Since the option in question expires in January 2022 and was bought in June 2020, it qualifies as a LEAPS option.

In June 2020, an Investor Buys a Put Option on Genentech