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SIE: Options
SIE practice questionmediumOption premiums

Which factor decreases an option’s premium?

  1. ALower volatility expectations✓ Correct answer
  2. BLonger time to expiration
  3. CUnderlying price moving in-the-money
  4. DIncreased interest rates
Explanation

Why ALower volatility expectations

Lower volatility decreases premium as risk of large movement drops. The other choices increase premium.

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