Asked by Nathan Seifner on Jul 15, 2024
Verified
Other things equal, the price of a stock call option is positively correlated with which of the following factors?
A) The stock price
B) The time to expiration
C) The stock volatility
D) The exercise price
E) The stock price, time to expiration, and stock volatility
Time To Expiration
The duration remaining until the expiration date of a financial instrument, such as an option or futures contract.
Stock Price
The current market price at which a share of a company's stock can be bought or sold.
Exercise Price
The cost at which an option's owner is allowed to purchase (for a call option) or offload (for a put option) the underlying asset or commodity.
- Understand the factors that affect the pricing of stock options, including their intrinsic and time values.
Verified Answer
AB
Amber BoeschJul 16, 2024
Final Answer :
E
Explanation :
The price of a stock call option is positively correlated with the stock price, time to expiration, and stock volatility. A higher stock price increases the likelihood that the option will be in-the-money at expiration, a longer time to expiration gives the stock more opportunity to increase in value, and higher volatility increases the potential for the stock to move above the exercise price.
Learning Objectives
- Understand the factors that affect the pricing of stock options, including their intrinsic and time values.