Which of the following could be a result of "crashophobia"?
A) High volatilities for in-the-money calls
B) High volatilities for in-the-money puts
C) High volatilities for at-the-money calls
D) Low volatilities for at-the-money puts

Question

Quizplus · Accepted Answer

Crashophobia is the word used to describe a possible "phobia" that traders might have that the market will crash.It would lead to out-of-the-money put options with low strike prices having high values and therefore high implied volatilities.In-the-money call options have the same implied volatilities as the corresponding out-of-the-money put options.Hence they also have high implied volatilities and the correct answer is A.

Which of the Following Could Be a Result of "Crashophobia