The premium on an existing call option should ____ when the underlying stock price decreases.

Question

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The premium of an existing call option represents the price that the option buyer paid for the right to purchase the underlying stock at the strike price. When the underlying stock price decreases, the option becomes less valuable because the likelihood of the stock reaching the strike price by expiration decreases. As a result, the demand for the option decreases, which leads to a decline in its premium.

The Premium on an Existing Call Option Should ____ When