FRM Part I · FRM Exam Part I · Options Markets
Which statement about the moneyness of European options is correct when the underlying asset trades at USD 60?
A put with a USD 65 strike is in the money when the stock is at USD 60. A put is in the money when its strike exceeds the spot price, giving an intrinsic value of USD 5. The other listed options are out of or at the money.
- AA put with strike USD 65 is in the moneyCorrect
- BA call with strike USD 65 is in the money
- CA call with strike USD 60 is in the money
- DA put with strike USD 55 is in the money
Explanation
A put is in the money when the strike exceeds the spot price: 65 > 60, so exercising yields 5. A call at 65 is out of the money, a call at 60 is at the money, and a put at 55 is out of the money.
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