You Own a Put Option Contract on Oliver Brothers Stock

question 172

Multiple Choice

You own a put option contract on Oliver Brothers stock with an exercise price of $37.50. What is the intrinsic value of your investment if Oliver stock is currently selling for $32.90 a share?

• A) -$460
• B) -$230
• C) $0
• D) $230
• E) $460

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Definitions:

Opportunity Cost

The expense associated with foregoing the next most favorable option when a choice is made.

Restrictive Policy

Policies or conditions imposed by lending institutions or governments that limit certain activities or operations to reduce risk.

Just-in-time

A production strategy that aims to reduce in-process inventory and associated carrying costs by producing goods only as they are needed in the production process.

Carrying Costs

Expenses associated with holding inventory, including storage, insurance, and spoilage costs.