Question

2.

The following applies to stock options. Fill in the blanks:

a. As the stock’s price decreases, a call option on the stock ___________ in value. b.

As the stock’s price decreases, a put option on the stock ___________ in value.

c. Given two call options on the same stock with the same time to expiration, the call with the greater strike price will cost ________ than the call option with the lower strike price.

d. Given two put options on the same stock with the same time to expiration, the put with the lower strike price will cost ________ than the put option with the lower strike price.

e. Given two put options on the same stock with the same strike price, the put with the greater time to expiration will cost ________ than the put option with less time to expiration.

f. As the stock price becomes less volatile, then a call option on the stock ___________ in value.

Answer 1

Call is directly related to stock price, time to expiry, volatility and inversely related to strike price

Put is directly related to strike price, time to expiry, volatility and inversely related to stock price

1.
decreases

2.
increases

3.
less

4.
less

5.
more

6.
decreases