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

Question

Quizplus · Accepted Answer

An increase in expected short-term volatility indicates a greater probability of the stock price moving significantly in favor of the call holder, increasing the potential profit from exercising the option. This increased potential profit will result in a higher premium for the call option. Therefore, the premium should increase when there is an increase in expected short-term volatility, making choice (C) the correct answer.

The Premium on an Existing Call Option Should ____ When