If the price of the underlying stock decreases, then the value of the call options ________ and the value of the put options ________.
A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase
E) increase; remain unchanged

Question

Quizplus · Accepted Answer

When the price of the underlying stock decreases, the value of call options decreases because the likelihood of the option being in-the-money (stock price above strike price) decreases. Conversely, the value of put options increases because the likelihood of the option being in-the-money (stock price below strike price) increases.

If the Price of the Underlying Stock Decreases, Then the Value