Asked by Sheridan Freeman on May 02, 2024
Verified
The value of a stock put option is positively related to
A) the time to expiration.
B) the striking price.
C) the stock price.
D) the time to expiration and the striking price.
E) All of the options are correct.
Striking Price
The set price at which an option's holder is allowed to purchase or sell the asset underlying the option.
Stock Put Option
A financial derivative that gives the holder the right, but not the obligation, to sell a specified quantity of a stock at a set price within a certain time period.
Expiration Time
The specific date and time when an options or futures contract becomes void and the rights to exercise it cease.
- Understand the fundamental principles of option pricing and valuation.
- Describe the key variables affecting option prices, including the role of the risk-free rate, stock volatility, and time to expiration.
Verified Answer
TV
Tiana VictorMay 07, 2024
Final Answer :
D
Explanation :
The value of a stock put option increases with both the time to expiration and the striking price. More time until expiration means a greater chance the stock price will fall below the strike price, and a higher strike price relative to the stock price increases the option's intrinsic value.
Learning Objectives
- Understand the fundamental principles of option pricing and valuation.
- Describe the key variables affecting option prices, including the role of the risk-free rate, stock volatility, and time to expiration.