- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility

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**CFA Practice Question**

Which of the following is(are) true with respect to option vegas?

II. The vega for a call option is at its highest when the call is at-the-money.

III. The vegas will be the same for call options and put options that share the same parameters.

I. As the volatility of the underlying asset increases, a call option will increase in value while a put option will decrease in value.

II. The vega for a call option is at its highest when the call is at-the-money.

III. The vegas will be the same for call options and put options that share the same parameters.

IV. The vega for a put option increases as the option move deeper out-of-the-money.

A. II and IV

B. II and III

C. I, II and IV

**Explanation:**I is incorrect because as the volatility of the underlying asset increases, both a call option and a put option will increase in value.

IV is incorrect because the vega of a put is the exact the same as that of a call with the same parameters. In both cases, vega is at its highest when the option is at-the-money.

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**User Contributed Comments**
2

User |
Comment |
---|---|

shiva5555 |
Uh, What is Vega? |

akirchner1 |
A measure of the options's sensitivity to changes in the volatility of the underlying asset. |