Which of the following statements is CORRECT?
A)If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.
B)Call options generally sell at a price less than their exercise value.
C)If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.
D)Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.
E)Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

Question

Quizplus · Accepted Answer

Call options generally sell at prices above their exercise value due to the time value and potential for future gains. For in-the-money options, as the exercise value increases, the premium tends to decrease relative to the exercise value because the intrinsic value becomes a larger portion of the option's price.

Which of the Following Statements Is CORRECT