If the underlying stock pays a dividend before the expiration of the options that will have the following effect on the price of the options:
I. increase the value of the call option II) increase the value of the put option
III. decrease the value of the call option
IV. decrease the value of the put option
A) I and II only
B) III and IV only
C) I and IV only
D) II and III only

Question

Quizplus · Accepted Answer

When a stock pays a dividend, the stock price typically drops by the dividend amount, which decreases the value of call options (III) and increases the value of put options (II).

If the Underlying Stock Pays a Dividend Before the Expiration