Hi,
For the below case, I would expect the price of the call option to increase as the underlying price will increase (through a call, I have locked in my exercise price)
The demand for share increases / supply decreases
However the solution says option price will go down as there is a benefit holding the underlying.
Can anyone please explain?
Thanks!!
It’s simple, in aforementioned scenario it is certain that market is not in equilibrium demand exceeds supply. To make it correct, price of the stock needs to go up. Why to pay extra premium for that? Thus skip underwriters of the options and go direct with stock. Less demand for options will negatively impact price of the option
THERE IS BENEFIT OF HOLDING THE ASSET 
rafal