Question

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 _______. increase; increase increase; decrease decrease; increase decrease; decrease

Answer 1

Answer: increase, increase

Explanation:

Unlike interest rates, volatility seriously affects the option prices. The higher the volatility of the basic asset, this significantly increase the prices of both the call options and put options. This is as a result of an increase in volatility which affects both the up potential and down potential.