Asked by Ailsa Hansen on May 09, 2024
Verified
The value of an American call option decreases when the value of the underlying asset decreases.
American Call Option
A financial contract that gives the buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a specified time period until expiration.
Underlying Asset
An asset or security on which a derivative instrument, such as a futures or options contract, is based.
Value Decrease
Occurs when the value of an asset or investment declines over time due to market conditions, wear and tear, or other factors.
- Identify the correlation between the value of a call option and the price fluctuations of the underlying stock.
Verified Answer
HS
Harry SinghMay 14, 2024
Final Answer :
True
Explanation :
An American call option gives the holder the right to buy the underlying asset at a predetermined price. If the value of the underlying asset decreases, the potential profit from exercising the option decreases, thus reducing the value of the option itself.
Learning Objectives
- Identify the correlation between the value of a call option and the price fluctuations of the underlying stock.