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Interview prep / Finance/Derivatives

Expiry values of four calls and puts

Question

Give the value at expiration of each option.

(a) A call with strike $19.50 when the stock closes at $20.

(b) A call with strike $22.50 when the stock closes at $20.

(c) A put with strike $23.25 when the stock closes at $25.

(d) A put with strike $23.25 when the stock closes at $22.

Short answer

(a) $0.50, (b) $0, (c) $0, (d) $1.25. At expiry a call is worth max⁡(S−K,0)\max(S-K,0) and a put max⁡(K−S,0)\max(K-S,0); only the first call and the last put finish in the money.

Adapted from OpenQuant; question and answer rewritten by SelfMadeQuant.com.

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