If the market is in equilibrium, then an option must sell at a price that is exactly equal to the difference between the stock's current price and the option's strike price.

Question

Quizplus · Accepted Answer

While the price of an option is influenced by factors such as the underlying stock price, volatility, time to expiration, and interest rates, it does not necessarily have to sell at a price equal to the difference between the current stock price and strike price for the market to be in equilibrium. In fact, options can trade at prices above or below this theoretical value (known as intrinsic value) due to factors such as investor sentiment and supply and demand dynamics.

If the Market Is in Equilibrium, Then an Option Must