Dollar movements in option prices are ________ than dollar movements in the stock price,and rate of return volatility of options is ________ than stock return volatility.
A) less,less
B) greater,greater
C) less,greater
D) greater,less
E) There is no particular pattern.

Question

Quizplus · Accepted Answer

The volatility of an option is greater than the volatility of the underlying stock because the option price is affected by both the stock price and the time value of the option. The time value of an option is the value of the option that is not due to the current stock price. As the time to expiration of an option decreases, the time value of the option decreases. This means that the option price will become more volatile as the time to expiration decreases.

Dollar Movements in Option Prices Are ________ Than Dollar Movements