The Premium on an Existing Put Option Should ____ When

question 6

Multiple Choice

The premium on an existing put option should ____ when the underlying stock price increases.

• A) be negative
• B) decline
• C) increase
• D) be unaffected
• E) A and B

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Definitions:

Transferable Permits

Transferable permits are regulatory instruments that allow the holder to emit a certain amount of pollution or use a certain amount of a resource; they can be bought and sold, creating a market for these permits.

Transferable Emissions Permit

A market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants, allowing entities to buy, sell, or trade permits.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a good or service.

Abatement

The reduction in the degree or intensity of pollution.