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

question 3

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)Both a May 45 put and a May 45 call will have higher values than your May 40 options.
• B)An increase in the stock price will increase the value of your put and decrease the value of your call.
• C)A decrease in the stock price will decrease the value of both of your options.
• D)The time premiums on both your put and call are less than the time premiums on fequivalent June 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:

Highly Subjective

Dependent on or influenced by personal feelings, tastes, or opinions, lacking an objective standpoint.

Precise Reaction Times

The time period taken to respond to a specific stimulus with great accuracy, often measured in cognitive and motor tasks.

William James

An American philosopher and psychologist, often referred to as the "Father of American psychology," known for his work in pragmatism and functional psychology.

True Purpose

The actual reason behind an action or an existence, not always visible or declared.