Use the option quote information shown here to answer the questions that follow.

Question

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $67.

Two of the options are clearly mispriced. Which ones? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer

and double click the box with the question mark to empty the box for a wrong answer.)

Use the option quote information shown here to answer the questions that follow. The stock is currently selling for $67.

Explanation / Answer

a-1

A call option is in the money when the strike price is lesser than the stock price.

Stock price = 67

Strike price for all the options with different expiration = 61

so, the call options are in the money.

a-2

Intrinsic value of the call option = Stock price - strike price = 67-61 = $6

b-2

A put option is in the money when the strike price is higher than the stock price.

Strike price = 61

Stock price = 67

So, the put option is out of the money

b.2

Intrinsic value = strike price - stock price

Intrinsic value = 61-67 = -6

Intrinsic value is considered as zero if it's negative.

C.

Mar call and Jul Put

Mar call option is priced less than Mar Put, though put option is out of the money. In the money options should be priced higher than out of the money options.

Jul Put is priced higher than Oct put, when the time to expiration is higher, the option price should be higher. Hence, Oct Put should be priced higher than Jul Put.

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