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A call option on a stock currently worth $50. If the stock’s expected return increases, all...

A call option on a stock currently worth $50. If the stock’s expected return increases, all other things stay the same, does this call option’s price increase, decrease or stay the same? Please explain.

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Answer #1

The value of a stock is inversely proportional to the expected return from the stock that is  to say that if the expected return on a particular stock increases then it will drag the value  of the stock downwards and the value  of the stock will decrease.

Since the price of a call option of calculated using the current price of the stock the price of a call option on that stock will decrease.

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