The greater the existing market price of the underlying financial instrument relative to the exercise price, the higher the put option premium, other things being equal.

Question

Quizplus · Accepted Answer

The statement is incorrect. The higher the existing market price of the underlying financial instrument relative to the exercise price, the lower the put option premium, other things being equal. This is because the put option holder has the right to sell the underlying asset at the exercise price, which is above the market price. Therefore, the put option is more valuable when the market price is lower relative to the exercise price.

The Greater the Existing Market Price of the Underlying Financial