The premium on an existing put option should ____ when there is an increase in the expected short-term volatility of the stock price.

Question

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The premium on an existing put option should increase when there is an increase in the expected short-term volatility of the stock price. This is because an increase in volatility increases the likelihood that the stock price will drop below the strike price of the put option, making the option more valuable. Therefore, buyers of put options will be willing to pay more for the option, driving up the premium. Option A is incorrect as there is no such thing as a negative option premium. Option B is incorrect as the premium will generally increase with an increase in volatility. Option D is incorrect as the premium is directly affected by changes in the underlying stock price and volatility. Option E is incorrect as only choice B is incorrect, and choice A is not applicable.

The Premium on an Existing Put Option Should ____ When