Question

All other things held constant, premiums on options will increase when ____ The volatility of the...

All other things held constant, premiums on options will increase when

____

  1. The volatility of the underlying asset falls
  2. The term to maturity decreases
  3. The strike price drops
  4. None of the above
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Homework Answers

Answer #1

Option A is wrong because when volatility decrease the value of Options decreases.

Option B is wrong because when maturity decreases the Time value of Option decreases, therefore the valule of Options decreases.

Option C is wrong becuase decrease in the Strike Price will increase the Value of Call Option but will decrease the value of Put Option.

Therefore, Option D is correct. None of the above.

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