Moneyness of Put Option Calculation

B

To determine the moneyness of the put option, we need to compare the exercise price of the put option to the current market price of the underlying stock.

In this case, the exercise price of the put option is $25, and the current market price of the Coleman Industries' stock is $21.

Since the exercise price of the put option ($25) is greater than the current market price of the stock ($21), the put option is out-of-the-money.

Here's a breakdown of the moneyness options:

1. In-the-money (ITM): This refers to a put option where the exercise price is higher than the current market price of the underlying stock. In this case, the put option would allow the holder to sell the stock at a higher price than its current market value, resulting in an immediate profit.

2. At-the-money (ATM): This refers to a put option where the exercise price is equal to the current market price of the underlying stock. In this case, the put option holder would break even if they were to exercise the option.

3. Out-of-the-money (OTM): This refers to a put option where the exercise price is lower than the current market price of the underlying stock. In this case, if the put option holder were to exercise the option, they would be selling the stock at a lower price than its current market value, resulting in a loss.

Since the exercise price of the put option ($25) is higher than the current market price of the stock ($21), the put option is out-of-the-money. Therefore, the correct answer is option A: Out-of-the-money.