Which one of the following statements is correct concerning in-the-money option values?
A)The value of a put decreases as the exercise price increases.
B)The value of a put increases as the price of the underlying stock increases.
C)The value of a call decreases as the exercise price increases.
D)An increase in the underlying stock price decreases both the value of a put and a call.
E)The value of a call decreases as the price of the underlying stock increases.

Question

Quizplus · Accepted Answer

In-the-money option values refer to options where the underlying stock price is higher than the exercise price (for call options) or lower than the exercise price (for put options). For a call option, as the exercise price increases, the option becomes less valuable because it becomes less likely that the stock price will rise above the exercise price. Conversely, for a put option, as the exercise price increases, the option becomes more valuable because it becomes more likely that the stock price will fall below the exercise price. Therefore, option values are affected differently by changes in exercise price and by changes in the underlying stock price.

Which One of the Following Statements Is Correct Concerning In-The-Money