BEC- QUESTION HELP!??

  • Creator
    Topic
  • #199187
    Anonymous
    Inactive

    Which of the following options is(are) worth exercising?

    Exercise Price Price of Underlying Asset

    Put Option A $30 $27

    Call Option B $29 $26

    Put Option C $25 $25

    Call Option D $20 $24

    Correct Answer : Options A and D

    So can someone explain in “plain english” why Option B is not worth exercising? Option C is clear- but this questions is confusing me with the explanation!

    Thank you in advance!!!

Viewing 4 replies - 1 through 4 (of 4 total)
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  • #752870
    leglock
    Participant

    With a call you want the actual price to go above your option price because the call option allows you to buy at the exercise price. So if your exercise price is 29 you can buy at 29 but market price is 26 so hou can only sell at 26 meaning you would lose 3.

    If mket price was 35 and u had a call option at 29 you would b making money bc u have the rite to buy at 29 and coukd then goto the mkt and sell at 35

    #752871
    leglock
    Participant

    #752872
    monikernc
    Participant

    a put you sell. a call you buy. and for option B you are not going buy something for $29 that is only worth $26

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    #752873
    Tripin93
    Participant

    One way that I remember what puts and calls means is by making this association:

    -Puts : remember P.S., like what you write at the end of a letter if you want to include an additional detail. S means that you are SELLING.
    -Calls: remember BC, just like the alphabet. B means that you are BUYING.

    Once you remember this, questions like this will be easy. You want to sell at the highest price possible. Buy at the lowest price possible.

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