Option values increase with an increase in the volatility of the underlying asset.

Name: Option values increase with an increase in the volatility of the underlying asset.
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Question

Quizplus · Accepted Answer

Option values are directly proportional to the volatility of the underlying asset. Higher volatility means there is a greater likelihood of the option reaching its strike price, and therefore a higher chance of making a profit. As a result, option premiums increase with higher volatility.

Option Values Increase with an Increase in the Volatility of the Underlying