Consider digital (cash-or-nothing) call options. When volatility increases, the holders of out-of-the-money options generally , and the holders of in-the-money options generally

Question

Quizplus · Accepted Answer

When volatility increases, the probability of an out-of-the-money option ending in the money increases, benefiting its holders. Conversely, in-the-money options already have intrinsic value, and increased volatility introduces more risk of moving out of the money, potentially disadvantaging their holders.

Consider Digital (Cash-Or-Nothing) Call Options