
Explanation:
The call option on Sun Inc. is in the money, the call on Moon Corp. is out of the money, and the put on Pluto Co. is out of the money. This is because a call option is considered 'in the money' when the current price of the underlying asset is higher than the strike price of the option. In this case, the current price of Sun Inc. ($111) is higher than the strike price ($109), hence the call option is 'in the money'. On the other hand, a call option is considered 'out of the money' when the current price of the underlying asset is lower than the strike price of the option. In this case, the current price of Moon Corp. ($109) is lower than the strike price ($113), hence the call option is 'out of the money'. Similarly, a put option is considered 'out of the money' when the current price of the underlying asset is higher than the strike price of the option. In this case, the current price of Pluto Co. ($89) is higher than the strike price ($87), hence the put option is 'out of the money'.
Choice A is incorrect. The call option on Moon Corp. is not in the money. A call option is considered to be in the money when the current price of the underlying asset is higher than the strike price of the option, which does not hold true for Moon Corp.
Choice B is incorrect. While it correctly states that the call on Sun Inc. is in-the-money and that Moon Corp.'s call option is out-of-the-money, it incorrectly states that Pluto Co.'s put option is in-the-money. A put option would be considered as being 'in-the-money' if its strike price was higher than current market price, which isn't true for Pluto Co.
Choice D is incorrect. This choice incorrectly states that Sun Inc.'s call option and Pluto Co.'s put options are out-of-the-money while stating correctly about Moon Corp's position being 'in-the-money'. For a call to be 'out-of-the-money', its strike price should be more than current market value which isn't true for Sun Inc., and similarly for a put to be 'out-of-the-money', its strike price should be less than current market value which again doesn't hold true for Pluto Co.
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Q.734 The following are the strike prices, current prices, and expiration dates for options on equities of various companies.
| Call option on Sun Inc. | Call option on Moon Corp. | Put option on Pluto Co. | |
|---|---|---|---|
| Strike price | $109 | $113 | $87 |
| Current price | $111 | $109 | $89 |
If you have long positions in all of these options, then which of the following options is true?
A
The call on Sun Inc. is in the money, the call on Moon Corp. is in the money, and the put on Pluto Co. is out of the money.
B
The call on Sun Inc. is in the money, the call on Moon Corp. is out of the money, and the put on Pluto Co. is in the money.
C
The call on Sun Inc. is in the money, the call on Moon Corp. is out of the money, and the put on Pluto Co. is out of the money.
D
The call on Sun Inc. is out of the money, the call on Moon Corp. is in the money, and the put on Pluto Co. is out of the money.