Assume That You Own Both a May 40 Put and a May

question 45

Multiple Choice

Assume that you own both a May 40 put and a May 40 call on ABC .Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

• A)An increase in the share price will increase the value of your put and decrease the value of
• Your call.
• B)Both a May 45 put and a May 45 call will have higher values than your May 40 options.
• C)The time premiums on both your put and call are less than the time premiums on
• Equivalent June options.
• D)A decrease in the share price will decrease the value of both of your options.
• E)You cannot profit on your position as your profits on one option will be offset by losses on
• The other option.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, recognizing it as an expense.

Property

Assets owned by an individual or business, encompassing real estate, personal property, and intellectual property rights.

Net Income

When revenue totals more than expenses, the result is net income.

Gross Profit

The difference between revenue and the cost of goods sold before accounting for other costs such as selling, administrative, and financial expenses.