Question
Hi-Tech announces a major expansion which causes the price of its stock to increase and also causes an increase in the volatility of the stock
Hi-Tech announces a major expansion which causes the price of its stock to increase and also causes an increase in the volatility of the stock price. How will these two market reactions affect the value of call options on Hi-Tech stock?
Neither reaction will affect call option values. Both reactions increase the value of the call options. Both reactions decrease the value of the call options. The change in volatility will not affect call option values while the increased stock price will increase the call option values. The reactions will have offsetting effects on call option prices.
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