Question

The value of a put rises as the price of

A. a call written on the same stock falls

B. the underlying stock rises

C. the underlying stock falls

D. a call written on the same stock rises

The price of a call option depends on

1. the strike price

2. the market price of the underlying stock

3. the expiration date of the option

A. statements 1, 2 and 3

B. statements 1 and 2 only

C. statement 2 only

D. statements 2 and 3 only

Answer 1

1) The Value of the put option increases when the market value of the underlying stock falls and the value of put option falls if the market value of the underlying stock rises.

So the correct answer is option (C) which is the value of the put rises as the price of the underlying stock falls.

2) The Price of the Call option depends on the following factors:

i) Stock Price: The Stock price impacts the value of the call option. If the stock price rises the value of call option also rises and vice versa.

ii) Excercise Price or Strike Price: Strike Price is the pre-determined price at which we can buy or sell the underlying option.

iii) Expiration date of the Option: The expiration date of the option also impacts the value of the call option. There may be fluctuation in price as the expiration date of the option approaches

So, all the statements impact the price of the call option, Therefore the correct answer is option (A), that is statements 1, 2 and 3.

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