6. Factors that affect the value of options

Understanding how different factors affect the value of options is the first step to understanding option pricing models.

When all other things are held constant, an option on an extremely volatile share of stock is worth (LESS OR MORE) than an option on a less volatile share of stock. As the exercise price of a call option increases, the price of the call option will (INCREASE OR DECREASE) . However, as the length of the option period (INCREASES OR DECREASES) , the call option price will increase. The call option price will decrease when the price of the underlying stock (INCREASE OR DECREASE) .

2.) Which of the following best describes a covered option?

A.) When an investor writes call options against stock held in his or her portfolio

B.) When an investor sells call options without the stock to back them up