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

Finance May 21, 2021

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.

Expert Solution

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.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote