Which of the following will not increase the value of a put option?

Question

Quizplus · Accepted Answer

A put option gives the buyer the right but not the obligation to sell the underlying asset at a fixed exercise price before or at the expiration date. The value of a put option depends on several factors, including the time to maturity, the stock price, the volatility of the stock price, and the exercise price. As the time to maturity increases, the value of a put option increases because there is more time for the stock price to fall below the exercise price. As the stock price decreases, the value of a put option increases because the holder would be able to sell the stock for a higher price than the market value. As the volatility of the stock price increases, the value of a put option increases because there is a greater chance that the stock falls below the exercise price. However, a decrease in the volatility of the stock price would decrease the value of the put option because there is less chance for the stock to fall below the exercise price. An increase in the exercise price would also decrease the value of the put option because it would be less likely for the stock price to fall below the higher exercise price. Therefore, the correct answer is C, a decrease in the volatility of the stock price.

Which of the Following Will Not Increase the Value of a Put