Assume that 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 cannot profit on your position as your profits on one option will be offset by losses on the other option.

Question

Quizplus · Accepted Answer

The time premiums on options generally decrease as the expiration date approaches, so equivalent options with a later expiration date (June) will typically have higher time premiums than those with an earlier expiration date (May).

Assume That You Own Both a May 40 Put and a May