- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 8. Pricing and Valuation of Options
- Subject 3. Factors Affecting Option Value
CFA Practice Question
In general, when the price of the underlying stock is ______ the price of a put option will ______, and the put owner will benefit.
B. falling; rise
C. rising; rise
D. falling; fall
A. rising; fall
B. falling; rise
C. rising; rise
D. falling; fall
Correct Answer: B
The value of a put is inversely related to the movement of the underlying stock. As the stock goes down the put gains value and as the stock goes up the put loses value. The put owner only benefits when the price of the stock declines.
User Contributed Comments 2
| User | Comment |
|---|---|
| aroman21 | And it's not A because....stock go up, put price becomes less likely and goes down... |
| narfey | A would be correct, but the part that says 'and the put owner will benefit' cancel it out. |