SIE Exam Question 742: Answer and Explanation

Question: 742

An investor purchases two puts. The first is a September Theta put at $35, underlying currently selling at $37. The second is a November Delta put at $28, underlying currently selling at $25. Ignoring transaction costs, what is the value of the options?

• A. Theta: -$2; Delta: $3
• B. Theta: $0; Delta: -$3
• C. Theta: $0; Delta: $3
• D. Theta: $2; Delta: $3

Correct Answer: C

Explanation:

The Theta option is out-of-the-money, therefore its value is $0. The value of the Delta option is $28 - $25 = $3.