If a Microsoft January 20 put option with a strike price of $20 were about to expire and the market price of the underlying Microsoft stock was $15.00, the price of the put option would have to be __________ to eliminate arbitrage opportunities.
A) $1.00
B) $2.00
C) $4.00
D) $5.00

Question

Quizplus · Accepted Answer

The price of the put option would have to be $5.00 to eliminate arbitrage opportunities because the difference between the strike price ($20) and the market price ($15) is $5. This means the intrinsic value of the put option is $5, ensuring no arbitrage opportunities exist.

If a Microsoft January 20 Put Option with a Strike