The speculative premium of a put as a percent of stock price represents the percent decline in the stock price necessary to break even.

Question

Quizplus · Accepted Answer

The speculative premium of a put option is the price of the option that is above its intrinsic value. This premium represents the amount an investor is willing to pay for the right to sell the stock at a specific price (strike price) before the option expires. The percent decline in the stock price necessary to break even on the purchase of a put option is equal to the gross premium divided by the stock price. Therefore, the statement is true.

The Speculative Premium of a Put as a Percent of Stock