On the expiration day,the maximum price of a put option on a stock is the greater of the:
A)stock price minus the exercise price,or 0.
B)the exercise price or 0.
C)exercise price minus the stock price,or 0.
D)stock price or 0.
E)exercise price or the stock price.

Question

Quizplus · Accepted Answer

On the expiration day, if the stock price is greater than the exercise price, the put option will not be exercised since the holder would not want to sell shares for less than their market value. Therefore, the maximum price of a put option on a stock will be the difference between the stock price and exercise price if the stock price is less than the exercise price. If the stock price is greater than the exercise price, the put option is worthless and the maximum price is 0. Therefore, option A is the correct choice.

On the Expiration Day,the Maximum Price of a Put Option