Options are often referred to as contingent claims or wasting assets. In the first case, because their value is dependent upon the value of the underlying stock, and in the second case, because their value is dependent on the length of time until the option expires. Option values are also affected by several other factors, and these factors will affect the value of call options and put options differently. However, understanding the effects of these different factors is the first step in understanding option pricing models. The following table shows how increases in the given factors on the left affect the value of a put option. For each factor, indicate whether an increase in its value causes the value of the put option to increase or to decrease. Causes the Value of the Put Option To Increase Decrease Increases in this factor: Underlying stock price Exercise price Time to expiration Volatility 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? Ken Tiana lower This is true because as the time to expiration incr higher ption buyers realize that there is a chance for Company A's stock to inca value. Thus, all other things being equal, the longer the time remaining for expiration, the the call option's value