Put option is more advantageous when market increases or decreases (as measured by market index): A) Increases B) Decreases C)First decrease then increase D) First increase then decrease
the best scenario has decreasing market prices with increasing volatility, D might be applying that but if so, it’s badly worded. B is the best option.
Am I the buyer or seller? I think that makes a difference…
i guess we need to assume you bought them…
Without getting too convoluted, I would think simply B. If the market increased then decreased, that would take more time, which long options will have a negative theta, meaning that the time value is declining as you go. You could go more in depth and argue that if the market increases, then decreases, volatility is rising which increases the value of the option.
This is a crazy question. What is the put? Is it a put on a stock? Did the stock move with the overall market? Or did it buck the trend and move up? Is it a put on an index? GIven the complete lack of information, I would go with B. May I ask where this queston came from?
yeah its got to be B or D… I could see how they would say D but… bad wording
This is from old allen questions. Answer A: If the market (as measured by a market index) increases, the put option provides a more advantageous position because it expires worthless and allows the investor to participate in the higher market return.
Does this make any sense?
same question I had when I saw this.
moregreat Wrote: ------------------------------------------------------- > This is from old allen questions. > Answer A: If the market (as measured by a market > index) increases, the put option provides a more > advantageous position because it expires worthless > and allows the investor to participate in the > higher market return. Say WHAT?!
i have no clue what they’re getting at with two of the answers. but i’ll go with B (i can barely remember the choices)… some of these questions seem to try to put in big wrinkles, but i think they need a bit more explanation as to what they may be getting at. i find they sometimes try to boil down 500 words to a 2-word descriptor. i’m told the exam questions are pretty clearly worded though
moregreat Wrote: ------------------------------------------------------- > This is from old allen questions. > Answer A: If the market (as measured by a market > index) increases, the put option provides a more > advantageous position because it expires worthless > and allows the investor to participate in the > higher market return. thats the dumbest thing I have ever heard.
I’m calling shenannigans on Allen resources.
They are talking about the put being used as a hedging vehicle (meaning you are long the market) in relation to shorting the stock market as a hedge. If the market goes up the put is worthless, but the shorted stock is getting crushed and cancelling your long market. I was going to ask if that was what they were looking for. Terrible question. This point is made in the hedge fund section of the books.
another way to look at this might be like this…for choice D…when market increases put option is at its low n later when market decreases it will help to generate higher returns…as we paid low for put n generate higher returns… whats your take on this???
Oooh, so when they say more advantageous, they mean more advantageous in relation to a short position when used as a hedge under which of the following conditions. Yeah, that might be an important point to clarify.