Stock and Call Option Price

Call Option Price
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FIN 550 Module 8-2 Short Paper
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Call Option Price
Stock Price and call option price
Call option prices are based on the underlying asset or security's price, and when there is stock volatility, there is a possibility of the stock price hitting the strike price. Buying a call option allows one to purchase a stock at a specified fixed price (strike price) before the expiration date. In-the-money call option occurs when the security’s current market price is higher than the strike price. If the stock price goes above the strike price, there is a payoff or exercise value when the call is exercised (Ehrhardt & Brigham, 2016). Call options tend to increase in value as the underlying stock price increases. As the stock price increases, the option price rises, and when close to the expiration the stock price gets close to the option strike because of increased stock trading.
Time expiration and call option price
Time until expiration is when the option contract gets voided, and if the expiration time is long, the time value and the option premium increase. The longer the time to change, the more likely the underlying asset price will increase than the shorter-dated options. Thus, longer-dated options have a higher value, and as expiration approaches, the call option value decreases. The American call option can be exercised before expiration, but a European option is exercised on the expiration date, which determines the time the option is held (Jin et al., 2021). When the time expiration is long, there is an anticipation of price movement, which is one reason why the call option price is higher when the expiration date is far. The further away fr...