What does the shape of the volatility smile reveal about put options on equity?
A) Options close-to-the-money have the lowest implied volatility
B) Options deep-in-the-money have a relatively high implied volatility
C) Options deep-out-of-the-money have a relatively high implied volatility
D) All of the above

Question

Quizplus · Accepted Answer

The volatility smile shows that low-strike-price options have high implied volatilities relative to at-the-money options.High-strike-price options have low implied volatilities relative to at-the-money options.Out-of-the-money put options have a low strike price.Hence C is correct.

What Does the Shape of the Volatility Smile Reveal About