Refer to the Listed Stock Option Price Quote from February and assume it is now January:

Based on the option quote,the June put should cost
I. more than $477.
II. more than $665.
III. more than the March and June 60 calls.
IV. more than the March 60 call but no more than the June 60 call.

Question

Refer to the Listed Stock Option Price Quote from February and assume it is now January:

Based on the option quote,the June put should cost
I. more than $477.
II. more than $665.
III. more than the March and June 60 calls.
IV. more than the March 60 call but no more than the June 60 call.

Quizplus · Accepted Answer

Based on the option quote, the June put has a strike price of 60 and a premium of 12.90.

I. The June put should cost more than $477 because the premium of 12.90 would have to be multiplied by 100 (the number of shares per options contract) and added to the strike price of 60 to get a breakeven price of $672.90, which is higher than $477.

II. The June put should cost more than $665 because the breakeven price calculated in part (I) is already higher than $665.

III. The March and June 60 calls have premiums of 6.40 and 7.60, respectively, which are lower than the premium of the June put. Therefore, the June put should cost more than the March and June 60 calls.

IV. The March 60 call has a premium of 8.50, which is lower than the premium of the June put. The June 60 call has a premium of 7.60, which is also lower than the premium of the June put. Therefore, the June put should cost more than the March 60 call but no more than the June 60 call.

Overall, the correct choices are I, II, and III, but not IV.