Problem:
The exercise price on one of ORNE Corporation's put options is $30 and the price of the underlying stock is $25. The option will expire in 25 days. The option is currently selling for $5.50.
Calculate the option's exercise value?
Calculate the value of the premium over and above the exercise value? What does this value represent?Is this an out-of-the money option, at-the-money, or in-the-money? Why?
What will happen to the value of the option if the underlying stock price changes to $24? Why?
Would the value of the option likely be higher, lower, or the same if the option had 60 days to expiration instead of 25? Why?