Assume the price of the underlying stock decreases.How will the values of the options respond to this change?
I.call value decreases
II.call value increases
III.put value decreases
IV.put value increases
A)I and III only
B)I and IV only
C)II and III only
D)II and IV only
E)I only

Question

Quizplus · Accepted Answer

When the price of the underlying stock decreases, the value of a call option (which gives the holder the right to buy the stock at a specified price) decreases because the option becomes less likely to be exercised profitably. Conversely, the value of a put option (which gives the holder the right to sell the stock at a specified price) increases, as the option becomes more likely to be exercised profitably.

Assume the Price of the Underlying Stock Decreases