If You Own a Call and a Put on a Stock

question 21

Multiple Choice

If you own a call and a put on a stock with the same exercise price and exercise date,your payoffs:

• A) will be positive only if the stock price rises.
• B) will be positive only if the stock price declines.
• C) will always be positive and will increase with the size of the stock price change.
• D) will always be positive but will be larger if the stock price is relatively stable.

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Definitions:

Franz Mesmer

An 18th-century German physician who developed a theory of animal magnetism and is considered a pioneer in the study of hypnosis.

Unconscious

Pertains to the part of the mind that is inaccessible to the conscious mind but that affects behavior and emotions.

Psychoanalytic Theorist

An individual specializing in psychoanalytic theory, which focuses on the unconscious mind and childhood experiences in shaping personality and behavior.

Sigmund Freud

The founding father of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.