An Up-And-Out Put May Be Preferred to a Vanilla Put

question 22

Multiple Choice

An up-and-out put may be preferred to a vanilla put

• A) Because it results in higher payoffs in all circumstances.
• B) Because it sometimes pays off even when the stock price rises whereas the vanilla only pays off when the stock price falls.
• C) By an Investor with strong directional views because it is a cheaper form of taking on a directional bet.
• D) By an investor more concerned with direction than volatility because the down-and-out put always reacts negatively to volatility unlike the vanilla put.

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