Asked by Kayla Gonzalez on Jul 07, 2024
Verified
Other things equal, the price of a stock call option is positively correlated with the following factors except
A) the stock price.
B) the time to expiration.
C) the stock volatility.
D) the exercise price.
Stock Volatility
The rate at which the price of a stock increases or decreases for a given set of returns.
Stock Price
The cost of purchasing a share of a company, which fluctuates based on market conditions, demand, and other economic factors.
Time To Expiration
The period that remains before a contract, such as an option or futures contract, reaches its maturity date and is either exercised or expires worthless.
- Grasp the negative or positive correlations between option prices and underlying factors such as stock price, time to expiration, stock volatility, and strike price.
Verified Answer
LT
Liatnworc TakalpJul 10, 2024
Final Answer :
D
Explanation :
The price of a stock call option decreases as the exercise price increases, all else being equal. This is because a higher exercise price makes it less likely that the option will end up in the money (i.e., with a stock price above the exercise price), thus reducing its value.
Learning Objectives
- Grasp the negative or positive correlations between option prices and underlying factors such as stock price, time to expiration, stock volatility, and strike price.