Asked by Neupane Saroj on May 23, 2024
Verified
Call options on XYZ Corporation's common stock trade in the market.Which statement regarding XYZ Corporation's options is true,other things held constant?
A) The price of these call options is likely to rise if XYZ's stock price rises.
B) The higher the strike price on XYZ's options, the higher the option's price will be.
C) Assuming the same strike price, an XYZ call option that expires in 1 month will sell at a higher price than one that expires in 3 months.
D) If XYZ's stock price stabilizes (becomes less volatile) , then the price of its options will increase.
Strike Price
The fixed price at which the holder of an option can buy (call option) or sell (put option) the underlying security or commodity.
Call Options
Financial contracts that give the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain time period.
Volatile
Characterized by or subject to rapid or unexpected changes, especially in the context of financial markets or securities prices.
- Become acquainted with the basic theories of option pricing and what influences the value of options.
- Assess how alterations in stock price influence the valuation of call and put options.
Verified Answer
SB
Shaaezmeen BasheerMay 29, 2024
Final Answer :
A
Explanation :
Call options give the holder the right to buy the underlying stock at a specified price (strike price) before or on the expiration date. If the stock price increases, the holder of the call option can purchase the stock at the lower strike price, making the option more valuable. Therefore, as XYZ's stock price rises, the price of its call options is likely to rise as well.
Learning Objectives
- Become acquainted with the basic theories of option pricing and what influences the value of options.
- Assess how alterations in stock price influence the valuation of call and put options.