Call options on XYZ Corporation's common stock trade in the market. Which of the following statements best describes the options, other things held constant?

Question

Quizplus · Accepted Answer

Call options give the holder the right to buy the underlying stock at a fixed price (strike price) within a specified period of time. As the stock price of XYZ Corporation rises, the chances of the option being exercised also increase, leading to an increase in the price of the call option. Therefore, option A is correct. Option B is incorrect because the higher the strike price, the lower the option price. Option C is incorrect because holding same strike price, an option that expires in three months will sell at a higher price than one expiring in one month because it has a longer time to expiration. Option D is incorrect because if the stock price stabilizes, the chance of the option being exercised may decrease, causing a decrease in the option price.

Call Options on XYZ Corporation's Common Stock Trade in the Market