A call option on £1,000 with a strike price of €1,250 is equivalent to
A)a put option on €1,250 with an exercise price of €1,000.
B)a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars.
C)a put option on £1,000 with an exercise price of €1,250.
D)both a put option on €1,250 with an exercise price of €1,000 and a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars.

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy an asset at a specified price on or before a certain date. A put option gives the holder the right to sell an asset at a specified price on or before a certain date. In this case, the call option on £1,000 with a strike price of €1,250 is equivalent to a put option on €1,250 with an exercise price of €1,000 because both options give the holder the right to sell an asset at a specified price on or before a certain date.

A Call Option on £1,000 with a Strike Price of €1,250