Dear All:
The lower the price of stock reduces the value of call options and increase the value of the put option. Why? what is the rationale behind this?
Thank you so much for your time.
Say the strike price is 55 and your current stock price is 60. Your call option right now is in the money and is worth more. You can use your call option and make a profit. However, if you have a put option, which increases in value the lower the stock prices is, is out of the money. When stock price decreases below strike price, then your put option will be in the money and worth more since you can redeem it and make a profit.
Well , the payoff depends on few variables such as Strike (X) , Current price , Discount rate etc . Hard to put a defnitive answer to your statement
for simplicity let us assume that your current stock price is 100 and the strike price is 90 then the option is in the money - option value is (S-X.e^-rt) if S falls the call option value falls and similarly the equation for calculation of intrinsic value of put option is = (X .e^-rt - S) when S falls the intrinsic value of the put option increases . Assuming these are both european call and put