True or False? If we define the “premium” on an option to be the difference between...
True or False?
If we define the “premium” on an option to be the difference between the price at which an option sells and the exercise value (or the difference between the stock’s current market price and the strike price), then we would expect the premium to increase as the stock price increases, other things held constant.
Homework Answers
Premium constits of two part
- Intrinsic Value
- Time Value of Money
The Premium value increases as the Price increases, but as time passes the Time Value decreases, decreasing the premium. but here if we talk about the Price movement, the premium of call will increase but the premium of put will decrease which makes the statement FALSE.
FALSE is the answer.
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