Options for last paragraph:

(lesser) or ( greater)

(lower) or (higher)

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 call option. For each factor, indicate whether an increase in its value causes the value of the call option to increase or to decrease. When is a call option considered to be out-of-the-money? When the exercise price is below the current stock price When the exercise price exceeds the current stock price Suppose Tiana bought an option to buy the stock of Company A at an exercise price of $25.00 per share. Tiana bought the option on June 10 and it doesn't expire until September 9. Company A's stock was trading at $22.30 per share on the day that Tiana bought the option. Ken also bought a call option for the same company on the same day with the same exercise price and underlying stock as Tiana did. But the option that he bought expires on August 15. If all other things are the same, who is likely to have paid more for the option? Tiana Ken This is true because as the time to expiration increases, option buyers realize that there is a chance for Company A's stock to increase in value. Thus, all other things being equal, the longer the time remaining for expiration, the the call option's value