Suppose a stock is currently priced at $40 per share, a February 35 call has a premium of $8, and a February 45 put has a premium of $7. If you wanted to buy this stock below the current market price using options, at what effective price could you buy the stock if the option is exercised? (Ignore brokerage commissions.)
A) 35
B) 37
C) 38
D) 39

Question

Quizplus · Accepted Answer

The effective price to buy the stock if the option is exercised is the strike price minus the premium paid. In this case, the strike price is $35 and the premium is $8, so the effective price would be $35 - $8 = $27.

Suppose a Stock Is Currently Priced at $40 Per Share