Tele-Tech Com announces a major expansion into Internet services. This announcement causes the price of Tele-Tech Com stock to increase,but also causes an increase in price volatility of the stock. Which of the following correctly identifies the impact of these changes on a put option of Tele-Tech Com?
A) Both changes cause the price of the put option to decrease.
B) Both changes cause the price of the put option to increase.
C) The greater uncertainty will cause the price of the put option to decrease. The higher price of the stock will cause the price of the put option to increase.
D) The greater uncertainty will cause the price of the put option to increase. The higher price of the stock will cause the price of the put option to decrease.
E) The greater uncertainty has no direct effect on the price of the put option. The higher price of the stock will cause the price of the put option to decreasE.

Question

Quizplus · Accepted Answer

The greater uncertainty (increased volatility) increases the value of the put option, while a higher stock price decreases the value of the put option.

Tele-Tech Com Announces a Major Expansion into Internet Services