Fred Paid

question 178

Multiple Choice

Fred paid $.60 to buy a put option with a $20 strike price. Edith paid $.90 to buy a put option with a $20 strike price. Fred's option is on ABC stock, which has a 52-week price range of $12 to $42. His option expires in three months. Edith's option is on XYZ stock with a 52-week price range of $14 to $21. Her option expires in six months. Which one of the following statements concerning these two options is correct assuming the underlying securities remain within their 52-week ranges?

• A) Fred's option has more value than Edith's option based on the time-to-maturity.
• B) Edith's option has more value than Fred's based on the variance of the underlying securities.
• C) Both options are certain to expire in the money.
• D) If the price of XYZ stock hits its 52-week high, Edith will make a net profit of $0.10 per share.
• E) The maximum net profit per share than Fred can earn is $7.40.

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Definitions:

Genital Arousal

A physiological response involving increased blood flow to the genital area, often in response to sexual stimulation.

Sexual Dreams

Dreams with sexual content or themes, reflecting personal desires, experiences, or purely imaginative scenarios.

Dreams' Content

The remembered storyline, images, thoughts, and emotions experienced during dreams.

Night Terrors

A sleep disorder characterized by high arousal and an appearance of being terrified; unlike nightmares, night terrors occur during Stage 4 sleep, within two or three hours of falling asleep, and are seldom remembered.