An investor purchases a call option and its underlying stock on the same day.If the stock appreciates by 25%,the call option will appreciate by:
A)more than 25%
B)less than 25%
C)exactly 25%
D)0%
E)less than 0%

Question

Quizplus · Accepted Answer

When an investor purchases a call option, they have the right to buy the underlying stock at a fixed price, known as the strike price. As the stock price increases, the value of the call option also increases, allowing the investor to buy the stock at a lower price and sell it at a higher price. However, the increase in the value of the call option is not necessarily proportional to the increase in the stock price. In fact, the value of the call option can increase by a much greater percentage than the stock price, depending on various factors such as the time remaining until expiration, implied volatility, and interest rates. Therefore, the answer choice A is correct: the call option will appreciate by more than 25%.

An Investor Purchases a Call Option and Its Underlying Stock