A european call and put option have the same maturity and hoth are at-the-money. The stock does not pay a dividend. Which option should sell for a higher preice? Explain.

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Lelia LubowitzLv2

21 Jan 2019

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A European call and put option have the same maturity and both are at the money. The stock doesnt pay a dividend. Which option should sell for the higher price? Explain

Are each of these true or false and why?

1. If you are sure that an American option will be in-the-money before expiration, you should always purchase that option.

2. Suppose we have a stock that will not pay out any dividends in the future and the current risk free interest rate is greater than 0. An at-the-money European call option on the given stock must cost more than an at-the-money European put option on that stock with the same expiration. [Hint: Use the Put-Call Parity condition along with what it means for the option to be âat-the-moneyâ.]

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If you buy a call and sell a put option on the same underlying, at the same strike price, with the same option maturity, your possible payoff will look exactly like what other trading strategy? Explain. (Both options are European.)

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A european call and put option have the same maturity and hoth are at-the-money. The stock does not pay a dividend. Which option should sell for a higher preice? Explain.

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