Question
Consider an American-style call option on Blaze Industries stock. If the market for Blaze Industriess call options has historically only traded options with three-month expirations
Consider an American-style call option on Blaze Industries stock. If the market for Blaze Industriess call options has historically only traded options with three-month expirations but suddenly the only call options being traded have one-month expirations, what would you expect to happen to the equilibrium price (premium) and quantity associated with the American-style call option?
A. The price of the American-style call option would decrease.
B. The price of the American-style call option would increase.
Consider an American-style put option on Zane Industries stock. If Zane Industries is a very large company with two million employees and over $500 billion in revenue, but it announces that it plans to increase the number of employees by 10%, and subsequently increase its revenues, what would you expect to happen to the price of the American-style put option as a result of the company growing in size?
A. The price of the American-style put option would decrease.
B. The price of the American-style put option would increase.
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