You believe that the stock price of company Y will decrease in the future. You buy a put on stock Y.

You believe that the stock price of company Y will decrease in the future. You buy a put on stock Y. The price of stock Y is down on the expiration date of the option. Give two different (not similar) scenarios where you would not be happy about this. You believe that the stock price of company Z will increase in the future. You buy a call on stock Z. The price of stock Z is up on the expiration date of the option. Give two different (not similar) scenarios where you would not be happy about this.

Solutions

Expert Solution

I would not be happy about buying the put option when-

A. The amount of premium paid on the put option is higher than the difference between the current market price and the strike price at the expiry.

B. The put option is still not exercisable

II. When I have bought a call option and even if price of the call option will be going up if the premium paid is higher than the amount of rise of the share than the strike price then I would be still in loss and I would not be happy.

if there is no appreciation in the value of option if any prices go up then I will also not be happy.

jeff jeffy answered 2 years ago

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