Daniel purchased Amazon shares in August 2022 at a price of $140 per share, but the value dropped to $103.6 per share by mid-May 2023 due to the volatile nature of the stock market. As a result, Daniel is now looking to mitigate his risk through the use of option contracts. He seeks your guidance on how to use these contracts effectively. A table of various options contracts, each containing 100 shares, is provided below for your consideration:

 

Specify the moneyness of the above options. Are they in the money, at the money or out of the money?

Explain the type of risk that Daniel is facing and which option is your suggestion to control his risk, provide your reason and explain it.

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Strike $105 $100 $103 $125 Call premium $8.05 $3.1 $0.7 $0.08 Moneyness Put premium $0.08 $0.09 $0.85 $9.48 Moneyness Strike $105 $100 $103 $125 Call premium $8.05 $3.1 $0.7 $0.08 Moneyness Put premium $0.08 $0.09 $0.85 $9.48 Moneyness

Answer rating: 100% (QA)

Moneyness of options refers to the relationship between the strike price of the option and the current market price CMP of the underlying asset There ... View the full answer