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Basic Question 1 of 9
Suppose an investor buys one share of stock and a put option on the stock. What will be the value of her investment on the final exercise date if the stock price is below the exercise price?
B. The value of one share of stock plus the exercise price
C. The exercise price
A. The value of one share of stock minus the exercise price
B. The value of one share of stock plus the exercise price
C. The exercise price
User Contributed Comments 8
| User | Comment |
|---|---|
| Alastair | [share price] + [exercise price - share price] = exercise price |
| katybo | So + po = So + (K-So) = K |
| danlan2 | It's asking value of the investment and not the profit of the investment. |
| epizi | This is about protective call. Simply by reason that the value of the option is the higher of either the stock or the exercise price, which ever. If it was the call option the concept of fiduciary call would have applied and the value would have been the stock. |
| mchu | Protective Put |
| gill15 | The stock is worth St regardless of if the EP goes up or down The Put is worth X - St add the two and you get X |
| bbadger | Not in here, but really it's the exercise price - the put cost |
| Inaganti6 | This is protective put I think. No where does a call come into the picture at all you're securing the bottom/floor not capping the upside (which a short call) does. |
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Learning Outcome Statements
explain put-call parity for European options
CFA® 2024 Level I Curriculum, Volume 5, Module 9.