The Premium on an Existing Call Option Should ____ When

question 4

Multiple Choice

The premium on an existing call option should ____ when there is an increase in the volatility of the underlying stock .

• A)be negative
• B)decline
• C)increase
• D)be unaffected
• E)be negative AND decline

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Definitions:

Passive Investment

An investment strategy involving minimal buying and selling actions, typically focused on long-term gains and avoiding frequent trading.

Common Stock

A type of security that represents ownership in a corporation and grants shareholders voting rights and a share in the company's profits through dividends.

Fair Value

The estimated market price of an asset or liability, reflecting the amount for which it could be exchanged or settled between knowledgeable, willing parties in an arm's length transaction.

Trading Securities

Financial securities purchased by a company, not intended for long-term investment but rather for making a profit in the near term from their sale or trade.