Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high spot price relative to the strike price will result in a relatively high premium for a call option but a relatively low premium for a put option.

Question

Quizplus · Accepted Answer

This statement is true. A call option gives the holder the right to buy an underlying asset at a predetermined strike price, while a put option gives the holder the right to sell the underlying asset at a predetermined strike price. If the spot price (current market price) of the underlying asset is higher than the strike price, it is more likely that the call option will be exercised, and therefore the premium for the call option will be relatively high. On the other hand, if the spot price is lower than the strike price, it is more likely that the put option will be exercised, and therefore the premium for the put option will be relatively high.

Both Call and Put Option Premiums Are Affected by the Level