The exercise price on one of ORNE Corporation\'s call options is $35 and the pri

Question

The exercise price on one of ORNE Corporation's call options is $35 and the price of the underlying stock is $34. The option will expire in 55 days. The option is currently selling for $0.25.

a. Calculate the option's exercise value?

b. Calculate the value of the premium over and above the exercise value? What does this value represent?

c. Is this an out-of-the money option, at-the-money, or in-the-money? Why?

d. What will happen to the value of the option if the underlying stock price changes to $34.50? Why?

e. If this were a put option, would it have a greater or lesser value than the call option? Why?

Explanation / Answer

a. the exercise value=35

b. premium=35-34=1......this value represent that to purchase call option option holder has to pay a premium of 1..

c.out of the money.....because option holder will purchase from outside instead of using option...

d.value of option will be 35.05 as premiunm is 1 on underlying stock price..

e. if this were put option he would have used the option and would sold at 35 thereby making profit of 34.75...

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