CFA Practice Question

There are 206 practice questions for this study session.

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.

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.
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