All else equal, if the volatility (variance)of the underlying stock increases, then the
A)value of a put option increases and that of a call option decreases.
B)value of a put option decreases and that of a call option increases.
C)value of both a put option and a call option increase.
D)value of both a put option and a call option decrease.

Question

Quizplus · Accepted Answer

Increased volatility (variance) in the underlying stock increases the potential for movement in the stock price, which raises the value of both put and call options. This is because options gain value from the possibility of the stock moving in a direction favorable to the option holder.

All Else Equal, If the Volatility (Variance)of the Underlying Stock