Investor A bought a call option, and investor B bought a put option. All else equal, if the underlying stock price volatility increases, the value of investor A's position will ________ and the value of investor B's position will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

Options, both call and put, generally increase in value with an increase in the underlying stock's volatility. This is because higher volatility increases the probability of the options ending in the money.

Investor a Bought a Call Option, and Investor B Bought