The profit of an index option is determined by:
A)the total value of the increase in the index.
B)the total value of the option.
C)the size of the premium.
D)More than one above

Question

Quizplus · Accepted Answer

The profit of an index option is determined by the total value of the increase in the index and the total value of the option. If the investor thinks the market is going up, he will purchase a futures contract. If he thinks the market is going down, he will sell a futures contract and hope the market will decline so that the contract can be closed out (repurchased) at a lower value than the sales price.

The Profit of an Index Option Is Determined By