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Homework answers / question archive / The price of a put option is   correlated with the stock price and correlated with the exercise price

The price of a put option is   correlated with the stock price and correlated with the exercise price

Finance

The price of a put option is   correlated with the stock price and correlated with the exercise price. a. negatively, negatively b. negatively, positively c. positively. negatively d. positively. positively e. depends on whether it is an American or a European option. 
 

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Answer

So, the correct option is B "negatively; positively".

Explanation

As the price of a stock rises, the more likely it is that the price of a put option will fall. The price of a put option increases with the increase in exercise price because the put option holder can sell the stock at a higher price. Higher the stock price, lower the put value. Higher the exercise price, higher the put value.  So, The price of a stock put option is negatively correlated with the stock price and positively correlated with the striking price.