Chapter 02 · Section 2.1

Exercising Options-3

Suppose you are the holder of a PHLX DM put option

You will most likely exercise your put when the option is:

• a) out-of-the-money.
  No. When a put option is out-of-the-money, the spot price of the underlying asset is higher than the exercise price. Thus, you can sell the underlying at a higher price on the spot market than you could receive by exercising the put.
  b) at-the-money.
  c) in-the-money.

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