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Question: The exercise price on one of Connor Corporation's put options is $20 and the price of the underlying stock is $15. The option will expire in 35 days. The option is currently selling for $5.50.
a. Calculate the option's exercise value?
b. Calculate the value of the premium over and above the exercise value? Why would an investor pay more than the exercise value for the option.
c. Is this an out-of-the money option, at-the-money, or in-the-money? Why?
d. What will happen to the market price of the option if the underlying stock price changes to $14? Will the exercise value or time value change? Explain.
e. Would the value of the option likely be higher, lower, or the same if the option had 60 days to expiration instead of 35? Why?
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