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Options: Which event will increase the value of a call?

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What event is likely to increase the market value of a call option on a common stock? Explain.

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Solution Summary

The solution gives the answer and then explains some basic concepts of call options with easy to understand examples. IBM stock was used for the example in a real life setting.

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An increase in the market price of a stock will increase the value of a call option. Conversely, when the stock price decreases, so does the option.

Example, if you bought an October 120 call on IBM, you are guaranteed to be able to purchase IBM stock for $120 per share on the expiration date of the call, October 17, 2008.

If you had bought the option at the opening this morning ...

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