Considering a put option; if the price of the underlying asset increases:
A)The value of the put option also increases.
B)The intrinsic value of the option increases.
C)The value of the option decreases.
D)The time value of the option decreases.

Question

Quizplus · Accepted Answer

When the price of the underlying asset increases, the value of the put option decreases. This is because the put option gives the holder the right to sell the underlying asset at a predetermined strike price, but if the asset's price is higher than the strike price, it becomes less profitable to exercise the option. The intrinsic value of the option may decrease as well, but this is not the primary factor affecting the option's value in this scenario. The time value of the option may also decrease, but this is not a guarantee and can be influenced by other factors such as volatility and interest rates.

Considering a Put Option; If the Price of the Underlying