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

question 241

Multiple Choice

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

• A) An increase in the stock 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 premium on both your put and call are less than the time premiums on equivalent June options.
• D) A decrease in the stock 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:

Hierarchy of Needs

A theory in psychology proposed by Abraham Maslow, suggesting that people are motivated by five basic categories of needs: physiological, safety, love/belonging, esteem, and self-actualization, which must be fulfilled sequentially.

Biological Needs

Basic requirements for human survival, such as food, water, shelter, and oxygen.

Social Needs

Fundamental human requirements for belonging, affection, acceptance, and companionship, which are essential for psychological well-being.

Anorexia Nervosa

A psychological and possibly life-threatening eating disorder characterized by an extreme fear of weight gain and a distorted perception of one's body weight or shape.