valuing options

Question 1

what are the 6 factors affecting option prices

Answer 1

1. the current stock price
2. the strike price (K)
3. the time to expiration (T)
4. the volatility of the stock price (theta)
5. the risk-free rate (r)
6. expected dividends

Question 2

if a call option is exercised at some future time, what will the payoff be?

Answer 2

the amount by which the stock price exceeds the strike price

Question 3

call options become more valuable as the ______ price increases, and less valuable as the ________ price increases

Answer 3

stock
strike

Question 4

for a put option, what is the payoff?

Answer 4

the amount by which the strike price exceeds the stock price

Question 5

both put and call american options become more valuable as the time to expiration _______

Answer 5

increases