FSA: Employee Compensation Why would an increase in the dividend yield decrease the valuation in the stock options?
Because that’s one of the inputs in the BSM - it’s the same concept as why paying out dividends decreases the value of a call option on said stock and increases the put option on said stock.
Dividends only benefit those who hold the actual underlying. Buy buying an option, you are forgoing the opportunity to receive that dividend.
thanks for responding, you cleared it up for me