If we define the "premium" on an option to be the difference between the price at which an option sells and the exercise value (or the difference between the stock's current market price and the strike price), then we would expect the premium to increase as the stock price increases, other things held constant.

Question

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See Figure 8-1, which shows that the premium becomes smaller and smaller as the price of the stock increases.One factor that produces this result is the fact that the amount of leverage inherent in the option diminishes as the stock price increases.

If We Define the "Premium" on an Option to Be