The higher the exercise price,the ________ the value of a put and the ________ the value of a call.

Question

Quizplus · Accepted Answer

A higher exercise price means that the underlying asset must increase in value more in order for the option to be profitable. Therefore, the value of a put option (which gives the holder the right to sell the asset at the exercise price) increases, as the likelihood of the asset falling below the exercise price is higher. On the other hand, the value of a call option (which gives the holder the right to buy the asset at the exercise price) decreases, as the likelihood of the asset rising above the exercise price is lower.

The Higher the Exercise Price,the ________ the Value of a Put