The value of a call option is positively related to:
A) Underlying stock price.
B) Time to expiration
C) Exercise price.
D) Choices a and b.
E) Choices b and c.

Question

Quizplus · Accepted Answer

The value of a call option is positively related to the underlying stock price and time to expiration. As the stock price increases, the option becomes more valuable because there is a greater chance of the stock price rising above the exercise price making the option profitable. Similarly, as the time to expiration increases, there is a greater chance of the stock price moving in the right direction, making the option more valuable. Therefore, choices a and b are correct. The exercise price (choice c) has an inverse relationship with the value of a call option.

The Value of a Call Option Is Positively Related To