As the price of a stock rises above the strike price,the value investors are willing to pay for a call option increases because both (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have increased.

Question

Quizplus · Accepted Answer

As the price of the stock rises above the strike price, the potential capital gain for the investor increases, making the option more valuable. Additionally, as the stock price rises, it becomes more likely that the stock price will be above the strike price by the expiration date, increasing the likelihood of exercise and further increasing the value of the option.

As the Price of a Stock Rises Above the Strike