Derivatives question - Confusing

CFA Level II Portfolio Management
#1

From Schweser’s Book 5 (page 96):

"From the Black-Scholes-Merton model, N(d)=0.42 for a 3-month call option on Panorama Electronics common stock. If the stock price falls by $1.00, the price of the call option will:

A. decrease by less than the increase in the price of the put option.

B. increase by more than the decrease in the price of the put option.

C. decrease by the same amount as the increase in the price of the put option."

Correct answer is A. How come? If the stock price “falls” I immediately assume that the call option will increase.

Thanks

#2

Which of the following is more valuable?

  • A call with a strike of $60 when the stock price is $60.50
  • A call with a strike of $60 when the stock price is $59.50
#3

I’ve just re-read my question and honestly I don’t know why I had the doubt. I guess I was a bit burn out after 7h of study.

Thanks!

#4

My pleasure.

Try to take a break every so often.