Question

The value of a listed put option on a stock is lower when _______________. I. the exercise price is higher II. the contract approaches maturity III. the stock decreases in value IV. a stock split occurs II only II and IV only I, II and III only I, II, III and IV

Answer 1

Answer: The correct answer is ONLY II

Explanation: A PUT OPTION is an option to sell a security at an agreed price.

The value of a listed put option is lower as its expiration date draws closer to. This is due to the fact that there is an increased chance of the stock falling below the specified strike price.

Answer 2

Answer: Only II

The contract approaches maturity

Step-by-step explanation:

The value of a listed put option is usually lower when it's approaches maturity because at that point the seller has to sell the option before the expiration of the agreed date. A put option allows the investor to sell at any price before a specified date. Once the option is close to maturity, the investor will most likely sell lower than the normal price since he does not want to told the option beyond expiration date.