As the price of a stock rises above the strike price, the value investors are willing to pay for a call option increases because (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have both increased.

Question

Quizplus · Accepted Answer

As the price of a stock rises above the strike price, the potential profit from exercising a call option increases, making it more valuable to investors. Additionally, the higher stock price increases the likelihood that the option will be in the money when it expires, further increasing its value. Therefore, as the stock price goes up, the demand and price for call options tend to increase as well.

As the Price of a Stock Rises Above the Strike