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Understanding Long Put Options

Understanding Long Put Options

Assessment

Interactive Video

Business, Mathematics

10th - 12th Grade

Practice Problem

Hard

Created by

Liam Anderson

FREE Resource

This video tutorial explains the long put options trading strategy, focusing on how the value of a put option increases as the stock price decreases. It covers the intrinsic and extrinsic values of put options, factors affecting their value such as implied volatility and time decay, and how to calculate ROI for different stock price scenarios. The video also demonstrates how to draw a profit-loss diagram and concludes with a review of the strategy's risks and potential profits.

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10 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What happens to the value of a put option if the stock price decreases?

It increases

It decreases

It becomes zero

It remains the same

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How is the intrinsic value of a put option calculated?

Difference between share price and option cost

Sum of strike price and share price

Difference between strike price and share price

Product of strike price and share price

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What effect does implied volatility have on put options?

Increases extrinsic value

Decreases intrinsic value

Has no effect

Decreases extrinsic value

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the impact of time decay on a put option?

Has no effect

Increases extrinsic value

Decreases extrinsic value

Increases intrinsic value

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

If the stock price at expiration is higher than the strike price, what happens to the put option?

It expires worthless

It loses intrinsic value

It gains value

It becomes more valuable

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is Jim's ROI if the stock price at expiration is $87?

-100%

-57.1%

42.9%

0%

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

At what stock price does Jim break even on his put option?

$80

$90

$87

$83

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