Asked by Quorban Young on Jul 23, 2024
Verified
Other things equal, the price of a stock put 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 time to expiration, stock volatility, and exercise price
Stock Volatility
The rate at which the price of a stock increases or decreases for a given set of returns, indicative of the risk or stability.
Exercise Price
The price at which an option holder can buy (call option) or sell (put option) the underlying security.
Time To Expiration
The duration remaining before an option or other derivative contract ceases to be valid and the holder must exercise their rights.
- Recognize the either negative or positive associations between option values and determinants like stock price, expiration duration, stock fluctuation, and strike price.
Verified Answer
TG
Tanesha GibbonsJul 24, 2024
Final Answer :
E
Explanation :
The price of a stock put option increases with more time to expiration, higher stock volatility, and a higher exercise price. More time allows for more potential price movement, higher volatility increases the chances of the option being in-the-money, and a higher exercise price compared to the stock price makes the option more valuable.
Learning Objectives
- Recognize the either negative or positive associations between option values and determinants like stock price, expiration duration, stock fluctuation, and strike price.