Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![6. Factors that affect the value of options
Aa
Aa
Understanding how different factors affect the value of options is the first step to understanding option pricing
models.
The following table shows how increases in the given factors on the left affect the value of a put option. For each
factor, indicate whether an increase in its value causes the value of the put option to increase or to decrease.
Causes the Value of the Put Option To
Increases in this factor:
Increase
Decrease
Underlying stock price
Exercise price
Time to expiration
Volatility
Which of the following best describes a naked option?
When an investor sells call options without the stock to back them up
When an investor writes call options against stock held in his or her portfolio](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8e241797-399b-4dac-ab9c-2b3b625a3d13%2F7bf605f3-7b8f-4c02-9054-c27a72ed7a34%2Fotldl9p_processed.png&w=3840&q=75)
Transcribed Image Text:6. Factors that affect the value of options
Aa
Aa
Understanding how different factors affect the value of options is the first step to understanding option pricing
models.
The following table shows how increases in the given factors on the left affect the value of a put option. For each
factor, indicate whether an increase in its value causes the value of the put option to increase or to decrease.
Causes the Value of the Put Option To
Increases in this factor:
Increase
Decrease
Underlying stock price
Exercise price
Time to expiration
Volatility
Which of the following best describes a naked option?
When an investor sells call options without the stock to back them up
When an investor writes call options against stock held in his or her portfolio
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