Assume You Own Both a May 40 Put and a May

question 12

Multiple Choice

Assume 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 premiums 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 can never profit on your positions as your profits on one option will be offset by losses on the other option.

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