- CFA Exams
- CFA Exam: Level I 2021
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 8. Factors that Affect the Value of an Option
CFA Practice Question
The downside effect of volatility hurts:
II. puts.
B. II only
C. both I and II
D. neither
I. calls.
II. puts.
A. I only
B. II only
C. both I and II
D. neither
Correct Answer: D
Volatility does not hurt either puts or calls.
User Contributed Comments 5
| User | Comment |
|---|---|
| antarctica | should be more specific in the answer: the volatility of stock price in the downside range does not affect either puts or calls. |
| bobert | No, it does affect puts. There are more possible downside values which are profitable for owning a put. The answer is right, it does not hurt either of them. |
| fabsan | If downside effect of volatility means less volatility for the underlying, then answer D is the proper answer. Higher volatility for the underlying = higher volatility for the option. |
| Inaganti6 | Why doesn't the question state lack of volatility ? |
| MariaDunet | Downside affect of volatility means decrease in prices of the underlying not in volatility. Changes in prices=increase in volatility =increase in values of both options. So it doesn’t hurts. |