As the volatility of the stock price increases, the time value of the option:
A) decreases.
B) is zero.
C) increases.
D) doesn't change.

Question

Quizplus · Accepted Answer

The time value of an option is based on the possibility and probability of the stock price moving in the desired direction before the expiration date. As the volatility of the stock price increases, the probability of the stock price moving in the desired direction increases, which in turn increases the time value of the option. Therefore, choice C is the best answer.

As the Volatility of the Stock Price Increases, the Time