Question 1
You own a $250,000 house and pay $1,000 for fire insurance. What is the exercise value of the fire insurance put option if the house does not burn (and you have paid no claim)? What is the realized return on your investment in fire insurance?
Exercise value for a put option = Put strike price – Current price of the underlying asset
= 0 – 1000 = - $1000
Question 2
What are the exercise values and time premiums of the following option: Exxon Mobile call with a strike price of $35 and a market value of $1.80. Exxon Mobil stock is selling for $33.40. ...
