The Chicago Board Options Exchange (CBOE) is one of the world\'s largest options
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Question
The Chicago Board Options Exchange (CBOE) is one of the world's largest options exchanges. cBOE and other options exchanges trade contracts that give buyers and sellers the right to trade investment assets at a specific price within a specific time period. option gives the option holder the right to buy an asset at a fixed price during a particular period. The fixed price, or the price at which the asset is bought, is called the exercise price. The Purple Pigeon Bird Seed Company stock was selling at $50 per share on the first day of this month If you had a call option on the first of the month with an exercise price of $45 and if the option also expires on the first, the value of the option would be If you had a put option on the first of the manth with an exercise price of $45 and if the option also expires on the first, the value of the option would be * If the put option expires in six months and the If the call option expires in six months, the value than the market expects the stock price to decrease, the value of the option is likely to of the option is likely to be difference in the stock price and exercise price of the call option at expiration. Now suppose you have another call option and a put option. The selling price of Purple Pigeon's stock is $50 per share on the first day of this month and the exercise price for both the call and put options is $60. | |· lf the exercise price of the call option is $60 and the option expires on the first, the value of the option is If the exercise price of the put option is $60 and the option expires on the first, the value of the option is If the put option expires in six months and the market expects the stock price to increase, the value of the put option is likely to · If the call option expires in six months and the market expects the stock price to increase, the value of the call option is likely to Flesih Player Wi1N 23,0,0.18 3.34.1 2004-2016 Apia All rights reserved 2013 Cengage Learning except as noted. All rights reserved rade it Now Save& ContinueExplanation / Answer
A. CALL option is the RIGHT TO BUY an asset.
B. S = 50 , X = 45 Put is out of the money , therefore value of put option = 0
C. If stock price is expected to decrease , value of put option should INCREASE.
D. CALL is IN THE MONEY - Therefore value is 5 / Positive.
E. If call is expiring in 6 months , the value will be LESSER than the differenct because of Time value of money.
F. S = 50 , X = 60 . Put is in the money - therefore value of PUT = 10/Positive
G. If stock price will increase , the put will near the exercise price causing it to Lapse , therefore the value wil DECREASE.
H. As Call is out of the money ,CALL value = 0
I. If the stock price will increase , the value of call will increase.
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