CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

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

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.

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.
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