1215

James Anthony has a short position in a put option with a strike price of $94. If the stock price is below $94 at expiration, what will happen to Anthony’s short position in the option?

A) He will have the option exercised against him at $94 by the person who is long the put option.

B) The person who is long the put option will not exercise the put option.

C) He will let the option expire.

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Anthony has sold the right to sell the stock at $94. That is, he received a payment upfront for the payer to have the right but not the obligation to sell the stock at $94. Because the option is in-the-money at expiration, MAX (0, X-S), the holder will exercise his right to sell at $94.

1215

A call option that is in the money:

A) has an exercise price greater than the market price of the asset.

B) has a value greater than its purchase price.

C) has an exercise price less than the market price of the asset.

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A call option is in the money when the exercise price is less than the market price of the asset.