volatile options
option value increases
option value decreases
option value stable
Answer is Right!
Answer is Wrong!
The correct answer is C. option value decreases.
When the exercise price rises, the option becomes less valuable. This is because the option holder has less chance of making a profit. For example, if the exercise price is $100 and the stock price is $90, the option holder can exercise the option and buy the stock for $100, even though it is worth only $90. However, if the exercise price is $110, the option holder would lose money by exercising the option, since the stock is worth less than the exercise price.
Therefore, as the exercise price rises, the option value decreases.
Here is a brief explanation of each option:
- A. Volatile options: This is not the correct answer because the exercise price does not affect the volatility of an option. The volatility of an option is determined by the underlying asset’s volatility, the time to expiration, and the interest rate.
- B. Option value increases: This is not the correct answer because the option value decreases as the exercise price rises.
- C. Option value decreases: This is the correct answer because the option becomes less valuable as the exercise price rises.
- D. Option value stable: This is not the correct answer because the option value decreases as the exercise price rises.