Which of the following statements is true?
| If the strike price increases, the value of the put option decreases. |
| If a stock price increases, the value of the call option on the stock increases. |
| If a stock pays dividends, the value of the call option on the stock increases. |
| If a stock price increases, the value of the put option on the stock increases. |
The Answer is “If a stock price increases, the value of the call option on the stock increases”
- The Price of Call Option will increases if the stock price increase,
- It happens because the strike price of the stock is always fixed.
- Hence an increase in the price of a stock will results in a situation of In-The-Money [ITM] at the expiration of the call option.
- Also a decrease in the price of a stock will results in a situation of At-The-Money [ATM] at the expiration of the call option.
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