Why should the premium for a call decrease with the strikeprice?

Why should the premium for a call decrease with the strike price?

Expert Solution

Call Option:

Holder of call option will have right to buy underlying asset at the agreed price ( Strike Price). As he is receiving right, he needs to pay premium to writer of call option. Holder of calloption will exercise the right, when expected future spot price > Strike Price. Then writer of option has obligation to sell at the strike Price. Holder will go for call option if he is bullish.

If the Future SPot Price > Strike Price - In the Money
If the Future SPot Price = Strike Price - At the Money
If the Future SPot Price < Strike Price - Out of the Money

If the strike Price is more, There will be less chance of exercising the option. Hence there is inverse relation between Strike Price and Value of call.

jeff jeffy answered 2 years ago

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