Asked by Jordan Prather on May 02, 2024
Verified
To the option holder, put options are worth ______ when the exercise price is higher; call options are worth ______ when the exercise price is higher.
A) more; more
B) more; less
C) less; more
D) less; less
E) It doesn't matter-they are too risky to be included in a reasonable person's portfolio.
Put Options
Options contracts that give holders the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.
Exercise Price
The predetermined price at which the holder of an option can buy (for a call option) or sell (for a put option) the underlying asset.
Call Options
Call options are financial contracts that give the option buyer the right, but not the obligation, to buy a specified quantity of an asset at a predetermined price within a set time frame.
- Gain insight into the core principles of option pricing and valuation.
Verified Answer
AA
Ashley Ann EdmundMay 02, 2024
Final Answer :
B
Explanation :
Put options become more valuable as the exercise price increases because the option to sell the underlying asset at a higher price becomes more attractive. Conversely, call options become less valuable as the exercise price increases because the cost to buy the underlying asset is higher, making the option less attractive.
Learning Objectives
- Gain insight into the core principles of option pricing and valuation.