Question

Which of the following DTET option contracts are out of the money when DTET is trading at $88 per share?

I. A short DTET 90 put, current premium is 4

II. A long DTET 90 put, current premium is 4

III. A short DTET 90 call, current premium is 4

IV. A long DTET 90 call, current premium is 4

A) I and II

B) I and III

C) III and IV

D) II and IV

Answer 1

Options III (a short DTET 90 call) and IV (a long DTET 90 call) are out of the money when DTET is trading at $88 per share, because their strike price is above the current trading price. Options I (a short DTET 90 put) and II (a long DTET 90 put) are in the money. Option c is the answer.

Step-by-step explanation:

The question pertains to identifying which option contracts are out of the money (OTM) when the stock DTET is trading at $88 per share. An option is considered out of the money depending on the strike price and the current trading price of the underlying asset.

For puts, an option is out of the money when the strike price is below the market price of the stock. For calls, an option is out of the money when the strike price is above the market price of the stock.

• I. A short DTET 90 put: This is not out of the money, it is in the money because the market price ($88) is below the strike price ($90).
• II. A long DTET 90 put: This is also not out of the money, as it is in the money.
• III. A short DTET 90 call: This is out of the money because the market price ($88) is below the strike price ($90).
• IV. A long DTET 90 call: Like the short call, this is also out of the money.

Therefore, the answer is C, which means III and IV are out of the money.