1
$\begingroup$

The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of $50 and 3 days to maturity are currently trading.

What is more likely effect to call and put prices, respectively, if the stock price decreases by \$1?

No Calculation. Hint: sketch indicative payoff and price graphs to observe the price points.

A. Decrease by \$0.94.Increase by \$0.08

B. Decrease by \$0.76.Increase by \$0.96

C. Decrease by \$0.07. Increase by \$0.89

$\endgroup$
1
$\begingroup$

In this case, call option is deep in the money while put option is deep out of money. As maturity is very near, any change in stock price would have equivalent impact on the call option price. Decline in one dollar in stock price lead to almost one dollar decline in call option price. Whereas for put, its worth would increase but put is still deep out of money (as maturity is also near). So increase in put value would be negligible.

So as per your 3 options given above only option A best fit the all possible scenario. So desire answer must be A.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.