Mrs. Smith believes that the p

Mrs. Smith believes that the price of a particular underlying currently selling at $30 will decrease substantially in the next six months, so she purchases a European put option expiring in six months on this underlying. This put option has an exercise price of $32 and its premium is $3.10. Which of the following is CORRECT?

  1. The put option has bilateral credit risk: both parties can be the party who bears credit risk

  2. THe present value of the potential credit risk is $2

  3. The current credit risk of this put option only exists at month six

  4. THe current credit risk of the put option seller is $3.10


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