Explanation:
A call option gives the buyer the right to buy the underlying asset at the exercise price. The option is "in-the-money" (ITM) when the underlying price is higher than the exercise price. Here, the underlying price (USD 1.35) > exercise price (USD 1.32), so the option is in-the-money.
The break-even price is the point where the buyer recovers the initial premium paid for the call option, which is calculated as: .
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Q.66 Jason Briggs purchased a 3-month call option by paying USD 0.08. The exercise price of the option is USD 1.32, while the underlying is priced at USD 1.35. Is the option currently in-the-money, and at what price will break-even occur?
A
In-the-money: No; Break-even Price: USD 1.27.
B
In-the-money: Yes; Break-even Price: USD 1.40.
C
In-the-money: Yes; Break-even Price: USD 1.35.
D
In-the-money: No; Break-even Price: USD 1.35.