If the stock price increases, the price of a put option on that stock __________, and that of a call option __________.
A)decreases; increases
B)decreases; decreases
C)increases; decreases
D)increases; increases

Question

Quizplus · Accepted Answer

When the stock price increases, the put option, which gives the holder the right to sell the stock at a specified price, becomes less valuable because it is less likely that the stock price will fall below the specified price. Therefore, the price of the put option decreases. On the other hand, the call option, which gives the holder the right to buy the stock at a specified price, becomes more valuable because it is more likely that the stock price will continue to rise above the specified price. Therefore, the price of the call option increases.

If the Stock Price Increases, the Price of a Put