All else the same, an increase in the volatility of the underlying stock will __________ the price of a call option and __________ the price of a put option.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
E) not affect; not affect

Question

Quizplus · Accepted Answer

An increase in the volatility of the underlying stock increases the price of both call and put options because higher volatility increases the potential for movement in the stock price, which increases the value of having an option.

All Else the Same, an Increase in the Volatility of the Underlying