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    Variables Affecting Option Price

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    Applying the following matrix, state whether the variable would increase or decrease the value of the call or put, keeping all other variables constant. Arrows imply increasing or decreasing the value of the variable. DISCUSS YOUR REASONING FOR EACH VARIABLE.

    Variable Call Value Put Value
    Stock price (↑) Increase Decrease

    Exercise price (↓) Increase Decrease

    Volatility (↑) Increase Increase

    Time to expiration (↓) Decrease Decrease

    Interest rates (↑) Increase Decrease

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    Discussion Question
    Option Pricing Variables

    Applying the following matrix, state whether the variable would increase or decrease the value of the call or put, keeping all other variables constant. Arrows imply increasing or decreasing the value of the variable. DISCUSS YOUR REASONING FOR EACH VARIABLE.

    Variable Call Value Put Value
    Stock price (↑) Increase Decrease

    Exercise price (↓) Increase Decrease

    Volatility (↑) Increase Increase

    Time to expiration (↓) Decrease Decrease

    Interest rates (↑) Increase Decrease

    Value of option = Intrinsic Value + Time Value
    Options have Intrinsic Value and Time Value. Intrinsic value is the value of an option if it is exercised now. Intrinsic value is actual difference between ...

    Solution Summary

    The effect of variables -stock price, exercise price, volatility, time to expiration, interest rates on call and put value

    $2.49

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