A put option gives its owners the right, but not the obligation, to: Sell a spec

Question

A put option gives its owners the right, but not the obligation, to: Sell a specified number of shares at a certain price within a specified period of time Buy a commodity at a specified price and future date, at which physical delivery occurs Sell a commodity at a specified price and future date, but physical delivery does not occur Buy a specified number of shares at a certain price within a specified period of time A put option on a single share of Petroxy Oil Co.'s common stock has a market price of $7.55 and expires in six months. The option has a strike price of $55.00, and the current stock price is $52.18. Select the correct exercise value and option premium for this put option in the following table: Suppose the stock's price increased to $59.88 and the option's market price fell to $1.25. Indicate the option's new exercise value and the new value of the option premium in the following table:

Explanation / Answer

2)Exercise price = $ 55

Option premium = $ 7.55  

3)Option premium consist of intrinsic value and time value of money .Before change :

Time value of money = 7.55 - (55-52.18)

                                       = 7.55 - 2.82

                                       =4.73

New option premium = $ 1.25

4.73 = 1.25 - (Exercise price -59.88)

4.73 -1.25 = - (Exercise price -59.88)

   3.48 = - EP + 59.88

    EP = 59.88-3.48

             = $ 56.40

New exercise price = 56.40

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