CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

The market is offering to sell a three-month at-the-money put option on Apple stock at 20% implied volatility. You believe Apple stock volatility should be closer to 16% implied volatility. What action should you take?
A. Buy the put
B. Sell the put
C. Wait and find out the option price
Explanation: If you believe the implied volatility will decrease, so will the option value; you should sell the put option. Implied volatility can be used to assess the relative value of different options, neutralizing the moneyness and time to expiration effects. Also, implied volatility is useful for revaluing existing positions over time.

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