How do rising interest rates generally affect call and put option premiums?

Rising interest rates typically lead to an increase in call option premiums while causing a decrease in put option premiums. The reasoning behind this involves the time value of money and how it affects the pricing of options.

For call options, higher interest rates mean that the cost of carrying the underlying asset (the cost associated with holding the asset until the option expires) increases. This increased cost makes the potential for profit from exercising call options more valuable, leading to higher premiums for these options.

Conversely, with put options, an increase in interest rates tends to decrease their premiums. The rationale is that as interest rates rise, the present value of the exercise price (the amount received when exercising the option) decreases. This reduction in the present value diminishes the attractiveness of put options, thus lowering their premiums.

This relationship helps traders anticipate how changing interest rates can impact the options market, facilitating better strategic decisions when trading options. Therefore, the correct answer reflects the broader financial principles relating to how options are valued in response to shifts in interest rates.