Options · Question 10 of 12
How does rising expected volatility of the underlying affect option prices if everything else stays the same?
2 answers are correct. Medium
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Answer
- A Calls become more expensive
- C Puts become more expensive
Explanation
Higher volatility increases the chance that the option will move deep into the money, while the buyer's loss remains limited to the premium. This makes calls and puts more expensive alike. Volatility is one of the most important price factors for options.