Which of the following will not increase the value of a put option?
A) an increase in the time to maturity
B) a decrease in the stock price
C) a decrease in the stocks volatility
D) an increase in the exercise price

Question

Quizplus · Accepted Answer

A put option gives the buyer the right to sell the underlying asset at a fixed price (strike price) on or before a specified date (expiration date). The value of a put option is influenced by several factors, including the stock price, time to maturity, volatility, and exercise price. Generally, a decrease in the stock price, an increase in the time to maturity, and an increase in the exercise price will increase the value of a put option. However, a decrease in the stock's volatility will reduce the potential price movement and, hence, the likelihood of the stock falling below the exercise price, leading to a decrease in the put option's value. Therefore, option C, a decrease in the stock's volatility, will not increase the value of a put option.

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