Suppose that a share of Callidus Corp sells at a price of $45 on the expiration date. Compute the price of a put option if the exercise price is $50.
A)$45
B)$5
C)$50
D)-$5

Question

Quizplus · Accepted Answer

If the stock price is $45 and the exercise price is $50, then the option is out of the money. This means that the owner of the put option would not want to exercise it, since they can buy the stock for a lower price ($45) in the market. Therefore, the value of the put option would be its intrinsic value, which is the exercise price minus the stock price: $50 - $45 = $5.

Suppose That a Share of Callidus Corp Sells at a Price