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A non-dividend paying stock is currently selling for $100. All else equal, a call option on...

A non-dividend paying stock is currently selling for $100. All else equal, a call option on this stock would have a lower premium if:

a. more than one of these answers are correct

b. time had passed.

c. the call option had a higher strike price

d. the stock's price increases

e. the volatility of the stock increases

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Answer #1

The correct answer is option a. more than one of these answers are correct

The correct answers are:

  • time had passed. The passing of time results in the decay of premium. So, the call option would have a lower premium
  • the call option had a higher strike price: The call option price of a higher strike is lower than that of a lower strike price

Option d and e are incorrect because the increase in call price and the increase in volatility of the stock increases the call option premium.

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