CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

The downside effect of volatility hurts:

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.
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