An increase in uncertainty results in a higher implied standard deviation for the stock, which means that the writer of an option requires a higher premium to compensate for the anticipated increase in the stock's volatility.

Question

An increase in uncertainty results in a higher implied standard deviation for the stock, which means that the writer of an option requires a higher premium to compensate for the anticipated increase in the stock's volatility. ​

Quizplus · Accepted Answer

An increase in uncertainty or volatility of a stock's price leads to a higher implied standard deviation, which in turn increases the risk for the writer of an option. To compensate for this increased risk, the writer demands a higher premium.

An Increase in Uncertainty Results in a Higher Implied Standard