Asked by Radhika Singh on Apr 24, 2024
Verified
The elasticity of a stock call option is always
A) greater than one.
B) smaller than one.
C) negative.
D) infinite.
E) None of the options are correct.
Elasticity
A measure of how much the demand or supply of a product changes in relation to a change in one of its determinants like price.
- Familiarize oneself with the foundational terms and concepts in option pricing, such as delta, hedge ratio, and elasticity.
Verified Answer
DM
Deepangana Mohanty6 days ago
Final Answer :
A
Explanation :
The elasticity of a stock call option is always greater than one because the percentage change in the option price relative to the percentage change in the underlying stock price is amplified due to the leverage effect of options. This means that for a given percentage increase in the stock price, the call option's price increases by a greater percentage, making its elasticity greater than one.
Learning Objectives
- Familiarize oneself with the foundational terms and concepts in option pricing, such as delta, hedge ratio, and elasticity.