The shares of Inco are currently trading at $45 a share. You are thinking about buying put options on Inco expiring in two months with an exercise price of $50. Which of the following is the most likely price for these puts in the market?
A) $2
B) $45
C) $7
D) $50
E) $5

Question

Quizplus · Accepted Answer

Since the stock price is currently below the exercise price of the put options, the options are likely to have value. The closer the exercise price is to the current stock price, the more expensive the options will be. Additionally, the shorter the time to expiration, the cheaper the options will be. Based on these factors, option C at $7 is the most likely price for the put options.

The Shares of Inco Are Currently Trading at $45 a Share