If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ to eliminate arbitrage opportunities.

Question

Quizplus · Accepted Answer

If the market price of the underlying Microsoft stock is $15.00, the put option with a strike price of $20 is deep ITM (in the money). The intrinsic value of the put option is $5.00 ($20 - $15). To eliminate arbitrage opportunities, the price of the put option should be equal to its intrinsic value, which is $5.00.

If a Microsoft January 20 Put Option with a Strike