Which of the following will NOT increase the value of a put option?
A)an increase in the time to maturity
B)a decrease in the share price
C)an increase in the exercise price
D)a decrease in the share's volatility

Question

Quizplus · Accepted Answer

A put option gives the holder the right to sell the underlying asset (e.g. shares) at a specified price (i.e. the exercise price) on or before a specified date (i.e. the maturity or expiration date). The value of a put option is negatively related to the underlying asset price and positively related to its volatility, time to maturity, and the difference between the exercise price and the underlying asset price. Therefore, a decrease in the share price or an increase in the exercise price or time to maturity would increase the value of a put option. However, a decrease in the share's volatility would decrease the value of a put option because it reduces the likelihood of large movements in the share price that could benefit the put option holder.

Which of the Following Will NOT Increase the Value of a Put