A put option on Facebook stock (European style, with strike price of X = $60 and expiration in T = 6 months) is traded at = $5. The stock price is currently = $56. Facebook pays no dividends. The risk-free rate is = 0% per year.

a) Is this option out-the-money, at-the-money, or in-the-money (OTM, ATM, or ITM)? How about a call with the same strike and expiration?

b) If you sell this put, at what stock price will you break even (i.e., have zero P&L)? What will be your dollar profit/loss if stock price ends up at = $70 at expiration?

c) Find the price of a call option with the same strike price and expiration date as the put.

d) Assuming the underlying stock price doesn't change, if a call price increases, then the price of the corresponding put with the same strike and expiration must (decrease/stay the same/increase/can't tell).

Answer rating: 100% (QA)

a The put option is inthemoney ITM because the current stock price 56 is less than the strike price ... View the full answer