Option basics

The Chicago Board Options Exchange (CBOE) is one of the worlds largest options exchanges. CBOE and other options exchanges trade contracts that give buyers and sellers the right to trade investment assets at a specific price within a specific time period.

A option gives the option holder the right to sell an asset at a fixed price during a particular period. The fixed price that the asset may be sold at is called the exercise price.

The following table shows the options quotation in U.S. dollars for Purple Pigeon Bird Seed Company for June 30 of this year.

Option	Closing Price	Strike Price	CallLast Quote September	PutLast Quote September
1	$43.00	$47.00	$2.00	$2.20
2	$43.00	$41.00	$3.00	$1.20
3	$43.00	$49.00	$1.60	$2.60

If you could exercise the options listed any time before the expiration date (the third Friday of September), then these options would be options.

Assume that the options listed in the table are American options. Which of the put options for Purple Pigeon Bird Seed Company listed in the table are in-the-money on June 30?

Option 1 and option 3

Only option 2

All of the options

None of the options

The Purple Pigeon Bird Seed Company stock was selling at $20 per share on the first day of this month.

	If you had a call option on the first of the month with an exercise price of $18 and if the option also expires on the first, the value of the option would be .
	If the call option expires in six months, the value of the option is likely to be than the difference in the stock price and exercise price of the call option at expiration.

	If you had a put option on the first of the month with an exercise price of $18 and if the option also expires on the first, the value of the option would be .
	If the put option expires in six months and the market expects the stock price to decrease, the value of the option is likely to .

Now suppose you have another call option and a put option. The selling price of Purple Pigeons stock is $20 per share on the first day of this month and the exercise price for both the call and put options is $24.

	If the exercise price of the call option is $24 and the option expires on the first, the value of the option is .
	If the call option expires in six months and the market expects the stock price to increase, the value of the call option is likely to .

	If the exercise price of the put option is $24 and the option expires on the first, the value of the option is .
	If the put option expires in six months and the market expects the stock price to increase, the value of the put option is likely to .