A Stock Price Is Currently $23

question 15

Multiple Choice

A stock price is currently $23.A reverse (i.e short) butterfly spread is created from options with strike prices of $20,$25,and $30.Which of the following is true?

• A)The gain when the stock price is greater that $30 is less than the gain when the stock price is less than $20
• B)The gain when the stock price is greater that $30 is greater than the gain when the stock price is less than $20
• C)The gain when the stock price is greater that $30 is the same as the gain when the stock price is less than $20
• D)It is incorrect to assume that there is always a gain when the stock price is greater than $30 or less than $20

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Definitions:

Cause And Effect

The relationship between events or things, where one is the result of the other or others.

Post Hoc

is a term derived from the phrase "post hoc ergo propter hoc," meaning "after this, therefore because of this," commonly used to describe a logical fallacy where one event is incorrectly assumed to cause another just because it occurred earlier.

Economic Reasoning

Refers to the process of making decisions based on comparing costs and benefits.

Marginal Costs

The added expense to produce one more item; it can decrease or increase depending on production size and efficiency.