A stock is currently selling for $23.25. What is the minimum amount for which a put option on the stock with a strike price of $25.00 should sell?

Question

Quizplus · Accepted Answer

Since the strike price of the put option is greater than the current stock price, the option is out of the money. Therefore, the minimum amount for which a put option on the stock with a strike price of $25.00 should sell is the option premium, which is the price an investor pays to purchase the option. The option premium represents the price of the option contract and determines the profit or loss on the option trade. 
The option premium for an out of the money put option is determined by a number of factors, including the time to expiration, market volatility, and interest rates. Given the current market conditions, the option premium for a put option with a strike price of $25.00 might be relatively low, perhaps around $1.75. The minimum amount for which a put option should sell is the difference between the strike price and the current stock price. Therefore, the minimum amount for which a put option on this stock with a strike price of $25.00 should sell is $1.75 ($25.00 - $23.25 = $1.75).

A Stock Is Currently Selling for $23