Call options on XYZ Corporation\'s common stock trade in the market. Which of th

Question

Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?
a. Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.
b. If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.
c. If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.
d. The price of these call options is likely to rise if XYZ's stock price rises.
e. The higher the strike price on XYZ's options, the higher the option's price will be.

Explanation / Answer

The price of the option is dependent on the value of the underlining asset and on the other hand the most influential factor for the premium amount of an option is the current market price of the asset.

If the price of the stock increases, the price of the call option also increases, because the stock is the underlining asset

Therefore, the correct option is D.

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