You own a put option on Phosfranc Inc. stock with a strike price of $50. The current stock price is $50. Which of the following would you prefer?

Question

Quizplus · Accepted Answer

If the stock price goes down, the value of the put option increases, which means you can sell the stock at a higher price than its current market price. This would result in a profit for you as the option holder. If the stock price goes up, the value of the put option decreases, which means there is less potential profit for you. If the stock price stays the same, you can still exercise your put option and sell the stock at the strike price for a profit, but it wouldn't be as high as if the stock price had gone down. Therefore, the best choice is for the stock price to go down.

You Own a Put Option on Phosfranc Inc