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NEW QUESTION: 3
In mid-September, the stock of Amazon.com, Inc. (AMZN) is selling for $147.A January call option on the stock is selling for $6.10 and has a strike price of $160. This call option is:
A. overpriced. No one should pay $6.10 for the right to buy a share of stock for $160 when its current market price is only $147.
B. in the money.
C. at the money.
D. out of the money.
Answer: D
Explanation:
Explanation/Reference:
Explanation: If Amazon.com is selling for $147 and the strike price on the option is $160, the call option is said to be out of the money since, even if an investor were given the option free, he would not benefit from exercising it at this time. If he did so, he would be paying $160 for a stock that is selling for only $147 on the open market. Even so, the option is not necessarily overpriced at $6.10 because the option has what is known as "time value" on it. The stock of Amazon.com has several months during which it could rise well above the $160 strike price on the option.
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