Suppose we are trading the call and put options for an underlying asset such as crude oil at a strike price of 1000. Will there be any scenario in which both the call option of strike price 1000 and the put option of the strike price 1000 for crude oil expire to zero on expiry day? What is the likelyhood of this happening?
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1What do yo mean "expire to zero"? A call option on an asset that is exactly the strike price at expiry will have zero value; otherwise either the call or the put will have value.– D StanleyDec 10, 2021 at 20:38
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1 Answer
If the price of oil* settles at 1,000 on the day of expiry, then both puts and calls with a strike of 1,000 will have zero value (though either could also be exercised). That is the only scenario - if the price of oil is greater than or less than 1,000, then either the calls or puts will have value at expiry.
*Note that exchange-traded options on oil are technically options on futures that expire about a week after the options expire. So by "price of oil" we mean the "value of the underlying oil future".
answered Dec 10, 2021 at 20:40
