Hi-Tech announces a major expansion which causes the price of its stock to increase and also causes an increase in the volatility of the stock price.How will these two reactions affect the value of call options on this stock?

Question

Quizplus · Accepted Answer

An increase in the stock price increases the value of call options because the options become more likely to finish in-the-money. An increase in volatility also increases the value of call options because there is a greater chance the stock price will move significantly, potentially increasing the option's payoff.

Hi-Tech Announces a Major Expansion Which Causes the Price of Its