You own a September put on CBA Corp.with an exercise price of $80.CBA stock currently trades at $80 and the put at $5.Which of the following is definitely true?
A) The option will continue to gain value until its September expiration.
B) The owner should exercise now in order to avoid further losses.
C) Decreases in the CBA stock price will be translated directly into additional option value.
D) $20 is the maximum value for this option.

Question

Quizplus · Accepted Answer

Option values increase as the underlying stock's price decreases, therefore decreases in the CBA stock price will be translated directly into additional option value. Option values may not necessarily continue to gain value until expiration, especially if the stock price remains stagnant or begins to increase. The owner should not exercise now as the option is still in-the-money and has a remaining time value. $20 is not the maximum value for this option as the option value can increase above $20 if the stock price decreases further.

You Own a September Put on CBA Corp