Question

If the volatility of the underlying asset increases, then the:

Value of the put option will increase, but the value of the call option will decrease. |
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Value of the put option will decrease, but the value of the call option will increase. |
||

Value of both the put and call options will increase. |
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Value of both the put and call options will decrease. |
||

Value of both the put and call options will remain the same. |

Answer #1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. **THUMBS
UP PLEASE.**

The premium increases depending upon the call option/put option:

For a Call option, there is an increase in premium with an increase in:

1. Underlying asset price.

2. Time to Expiration

3. Volatility of the Underlying.

For a Put option, there is an increase in premium with an increase in:

1. Stike price

2. Time to Expiration.

3. Volatility of the Underlying.

Answer: Value of both the put and call options will increase.

3.3 In the Black-Scholes option-pricing model, if volatility
increases, the value of a call option will increase but the value
of the put option will decrease. (True / False)
3.4 The Black-Scholes option pricing model assumes which of the
following?
Jumps in the underlying price
Constant volatility of the underlying
Possibility of negative underlying price
Interest rate increasing as option nears expiration

Consider call and put options. Assume that the price of an
underlying asset evolves without drift and with a given volatility.
Compare and contrast the response of the price of the call and put
options to a decrease in the volatility of the underlying asset.
Provide diagrams to support your
answer.

To maximize profit, the writer (seller) of a call option wants
the price of the underlying asset (S) to __________ and the holder
(buyer) of a put option wants the price of the underlying asset (S)
to __________.
Question 5 options:
decrease, decrease
decrease, increase
increase, decrease
increase, increase

Consider a put option and a call option with the same strike
price and time to maturity. Which of the following is true? (5
points)
It is possible for both options to be in the money.
It is possible for both options to be out of the money.
One of the options must be in the money.
One of the options must be either in the money or at the
money.
When the stock price increases with all else remaining...

1. Does market price of a put option decrease or increase in the
exercise price?
2. Does market price of a put option decrease or increase in the
time to expiration?
3. Does market price of a put option decrease or increase in the
price of underlying asset?
4. Does market price of a put option decrease or increase in the
dividend payouts of underlying asset?
5. Does market price of a put option decrease or increase in the
interest...

1. You buy a put option with strike price of $25. Currently, the
market value of the underlying asset is $30. The put option premium
is $3.25. Assume that the contract is for 150 units of the
underlying asset. Assume the interest rate is 0%. a. What is the
intrinsic value of the put option? b. What is the time value of the
put option? c. What is your net cash flow if the market value of
the optionsâ€™ underlying...

1.
American put option price increase if time to expiration gets
extended.
True
or
False
2. American put option price will increase if risk free rate
decrease.
True
or
False
3. American put option price increase if volatility of
underlying stock price goes down.
True
or
False
4. For a non dividend paying underlying stocks, american call
options can be more expensive than european call options that are
equal in other terms.
True
or
False

A call option with exercise price of $120 is priced at $3, the
underlying security price is $125. At the same time, a put option
for the same underlying security with the same exercise price and
maturity, is price at $3. Assume both options are of American
style. Which of the following most likely to be correct?A.Both
options are overpriced. B. The call option is underpriced. C. The
put option is overpriced.D. Both options are underpriced. E. None
of the...

Show that an at the money call option on an underlying asset paying
dividends continuously at rate
is worth more than an at the money put option with the same
maturity if and only
if
, where
is the constant risk free rate. Hints: Put-Call parity,
Black-Scholes formula.

You buy a put option on one unit of the underlying asset. The
option has a premium of $3.50 and a strike price of $15. As the
option is about to expire, the underlying asset is worth $21.70.
What will your net payoff be?

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