A stock is selling for $45.75 with a put option available at a $50 strike that has a premium of $7.50. What is the speculative premium of the put?
A)$4.25
B)$1.25
C)$3.25
D)$5.25
E)$7.50

Question

Quizplus · Accepted Answer

The speculative premium of a put option is the difference between the option premium and the intrinsic value of the option.

In this case, the intrinsic value of the put option is the difference between the strike price ($50) and the current stock price ($45.75), which is $4.25.

Therefore, the speculative premium of the put option is the option premium ($7.50) minus the intrinsic value of the option ($4.25), which is $3.25.

So the correct answer is C) $3.25.

A Stock Is Selling for $45