- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 8. Factors that Affect the Value of an Option
CFA Practice Question
In general, when the price of the underlying stock is ______ the price of a call option will ______, and the call owner will benefit.
A. rising; rise
B. rising; fall
C. falling; rise
Explanation: The value of a call is directly related to the underlying common stock. As the price of the stock goes up the call gains value and as the stock declines the call loses value. The call owner benefits when the price of the stock rises.
User Contributed Comments 2
| User | Comment |
|---|---|
| chuong | price of call option = MAX (0, St-X) -> St (underlying) increase -> price of call option increase |
| andy4cfa | use the profit/loss diagram of call option |