Investor a Bought a Call Option That Expires in 6

question 56

Multiple Choice

Investor A bought a call option that expires in 6 months.Investor B wrote a put option with a 9 month maturity.All else equal as the time to expiration approaches the value of Investor A's position will _______ and the value of Investor B's position will _______.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

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Definitions:

Sensitivity

The quality of being easily affected by outside forces or influences, often used in discussing market sensitivity to price changes or consumer sensitivity to environmental issues.

Price Elasticity

An economic concept that describes the degree to which the demand for a product or service varies with its price.

Survival Pricing

A pricing objective that involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure during a difficult time.

Break-Even Point

The point at which total revenue equals total costs, resulting in no net loss or gain for the business.