You buy an at-the-money chooser option. Immediately after you buy it, the price of the underlying increases very sharply. Other things remaining the same, the value of your chooser likely
A) Increases.
B) Decreases (the put now has no value).
C) Remains constant (the increase in call value is canceled out by the decrease in put value).
D) Goes to zero.

Question

Quizplus · Accepted Answer

The value of a chooser option, which allows the holder to choose whether it's a call or put option at a certain point in the future, increases when the underlying asset's price increases sharply. This is because the value of the call component of the option increases, making the option more valuable overall.

You Buy an At-The-Money Chooser Option