Which one of the following is correct for the owner of a September put, valued at $20, on CBA Corp. with a strike price of $80? CBA currently trades at $67.
A) The option will continue to gain value until its September expiration.
B) The owner profits $13 per share by exercising now.
C) Further decreases in the CBA stock price will be translated directly into additional option value.
D)$20 is the maximum value for this option.

Question

Quizplus · Accepted Answer

As the stock price of CBA decreases, the value of the put option will increase. Therefore, further decreases in the CBA stock price will be translated directly into additional option value. Option A is incorrect because it is not guaranteed that the option will continue to gain value until its September expiration. Option B is also incorrect because exercising the option at the current stock price would result in a loss of the option premium. Option D is incorrect because the option has the potential to increase in value beyond $20 if the stock price of CBA continues to drop.

Which One of the Following Is Correct for the Owner