A decrease in which of the following will increase the value of a put option on a stock?
A) Strike price and standard deviation of the returns on the underlying stock
B) Stock price and risk-free rate
C) Time to expiration and strike price
D) Risk-free rate and standard deviation of the returns on the underlying stock
E) Time to expiration and stock price

Question

Quizplus · Accepted Answer

A decrease in the stock price increases the likelihood that a put option (the right to sell a stock at a predetermined price) will be exercised profitably, as the option becomes more valuable if the stock can be sold at a price higher than the market price. Similarly, a decrease in the risk-free rate increases the present value of the exercise price, making the put option more valuable.

A Decrease in Which of the Following Will Increase the Value