One month ago you purchased a put option on the S&P500 Index with an exercise price of $900.00. Today is the expiration date, and the index is at $896.46. a. Will you exercise the option? b. What will be your profit?
One month ago you purchased a put option on the S&P500 Index with an exercise price of $900.00. Today is the expiration date, and the index is at $896.46. a. Will you exercise the option? b. What will be your profit?
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
Problem 1PS
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Question
One month ago you purchased a put option on the S&P500 Index with an exercise price of $900.00. Today is the expiration date, and the index is at $896.46.
a. Will you exercise the option?
b. What will be your profit?
Expert Solution
Introduction,
Options are financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a certain price (the strike price) on or before a certain date. The value of an option is derived from the uncertainty of the underlying asset's price, which is affected by various factors, such as the supply and demand of the asset, changes in interest rates, and changes in market sentiment.
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