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Sir, if in the exam we aren’t told which strike price to use, what approach is the best? For both put and call options.
I saw in this one question in the BPP ST, we subtracted the premium from the strike price to get a net strike price for put options and we choose the one with the highest net.
There is never a ‘best’ strike price. The strike price limits the maximum or minimum exchange rate or interest rate, but the ‘better’ the limit the more the premium will be (and the premium will of course be ‘wasted’ if the option ends up not being exercised.
The marks in the exam are for proving that you understand how options work, and for this you can choose any strike price.
The one exception to this is if the question specifically states the limit required. In this case it is whichever strike price ends up giving a result within this overall limit.
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