As the price of a stock rises above the strike price, the value investors are willing to pay for a call option increases because both (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have both increased.

Question

Quizplus · Accepted Answer

As the price of the stock rises above the strike price, the chances of the option being "in the money" at expiration also increases, making it more valuable to investors. Additionally, the immediate capital gain from exercising the option also increases with the rising stock price. Therefore, both factors contribute to the increase in the value investors are willing to pay for a call option.

As the Price of a Stock Rises Above the Strike