I bought a put option on Microsoft stock with a strike price of $300 expiring on January 10, 2022. The option premium is $20 and the current stock price of Microsoft is $275. Assume that each option is for 1 Microsoft share. Under this option contract, I have the to a share of Microsoft for a price of on or before January 10, 2022.
I bought a put option on Microsoft stock with a strike price of $300 expiring on January 10, 2022. The option premium is $20 and the current stock price of Microsoft is $275. Assume that each option is for 1 Microsoft share. Under this option contract, I have the to a share of Microsoft for a price of on or before January 10, 2022.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:I bought a put option on Microsoft stock with a strike price of $300
expiring on January 10, 2022. The option premium is $20 and the
current stock price of Microsoft is $275. Assume that each option is for 1
Microsoft share. Under this option contract, I have the
to
a share of Microsoft for a price of
on or before January 10, 2022.
right; purchase; $275
right; purchase; $300
right; sell; $300
obligation; purchase; $300
Expert Solution
Step 1
Put option gives the holder the right but not the obligation to sell at the strike price. A put option is only valuable only if the spot price is below the strike price.
Please note that in the question "on or before January 10,2022". This means that this option is an American Option. American Option can be exercised at any time before expiration while a European Option can only be exercised at expiry.
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