Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?
A) The price of these call options is likely to rise if XYZ's stock price rises.
B) The higher the strike price on XYZ's options, the higher the option's price will be.
C) Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.
D) If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.
E) If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

Question

Quizplus · Accepted Answer

The price of call options generally increases when the underlying stock price rises, as the option becomes more valuable.

Call Options on XYZ Corporation's Common Stock Trade in the Market