Question

True/False

- The value of a European call is higher for lower strike prices.​

- According to Put-Call Parity, a stock is equivalent to a long call, short put and long risk-free bond.​

Answer 1

The strike price determines if the option has any intrinsic value. Remember, intrinsic value is the difference between the strike price of the option and the current price of the underlying asset. The premium typically increases as the option becomes further in-the-money (where the strike price becomes more favorable in relation to the current underlying price). The premium generally decreases as the option becomes more out-of-the-money (when the strike price is less favorable in relation to the underlying security).