If you are long the option, then you can choose whether to exercise or not.
Risk-neutral valuation is one way to estimate the value of the option before maturity
A call has an exercise price of $18 and 6 months to maturity. The stock price is $19. Find the intrinsic value. If the option price is $1.75, what is the speculative value?
|A.||Intrinsic = 1; speculative = .75|
|B.||Intrinsic = 0; speculative = .75|
|C.||Intrinsic = 1; speculative = 1.75|
|D.||Intrinsic = 0; speculative = 1.75|
There are two calls on the same stock. Both expire in 6 months and are identical in every way except the exercise price. If Call A has an exercise price of $40 and Call B has an exercise price of $50, which call will have a higher price?
|C.||Cannot be determined|
If the present value of the exercise price is $20, the call option is selling for $5, and the market price of the stock is $22. If the put is selling for $5, should you buy it? Why or why not?
|A.||Yes, you will make $3|
|B.||No, you will lose $3|
|C.||Yes, you will make $2|
|D.||No, you will lose $2|
Which of the following is an example of a real option?
|A.||Foothold in an expanding market|
|B.||End a project early|
|C.||Wait for better market conditions|
|D.||All of these are real options|
A _____ gives the owner the right to buy an asset at a fixed price for a set length of time
If immediate exercise generates value, the option is ___ the money.
The minimum option value
With a (an) ____ option, you can exercise at any time up to the maturity date
A decrease in ____ will decrease the price of both a call and a put on the same stock
If the stock is worthless, then the call option is worthless.
Put-call parity says that the call plus the stock is equal to the put plus the present value of the exercise price