An investor purchases a call option and its underlying share on the same day. If the share appreciates by 25%, the call option will appreciate by
A)less than 25%.
B)exactly 25%.
C)more than 25%.
D)None of the above.

Question

Quizplus · Accepted Answer

When the underlying share appreciates, the call option will also appreciate because of its intrinsic value. However, because of the leverage effect of options, the appreciation of the call option will be greater than the appreciation of the underlying share. Therefore, the call option will appreciate more than 25%.

An Investor Purchases a Call Option and Its Underlying Share