The Effect of Interest Rates
In contrast to call
option prices, which vary directly with interest rates, put option prices
vary inversely with interest rates. Purchasing a put is like deferring the sale
of the stock. When you finally sell the stock by exercising
the put, you receive X dollars. If interest
rates increase, the X dollars will have a lower present value. Thus, a put holder
forgoes higher interest while waiting to exercise the option and receive the exercise
price. Higher interest rates make puts less attractive to investors.
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