Question

Stock X is selling for $40 a share. An American put option on this stock with a strike price of $48 is trading at $10 per share.

a. the put is in the money
b. the put is out of the money
c. you can make arbitrage profit by buying the put and exercising it immediately
d. a and c

Answer 1

a. the put is in the money

Step-by-step explanation:

Given that

The Selling price of stock x = $40

Strike price = $48

And, the trading per share = $10

Based on the above information

As we know that the put option is the option in which there is a right to sell the particular asset at a particular price on some future date

As we can see that the market price is lower than the strike price so this is the put within the money

Hence, the correct option is a.