CFA Practice Question

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CFA Practice Question

An investor believes that the stock price volatility of is about 33% implied volatility. A three-month at-the-money call on an option is being offered at 25% implied volatility. The investor should ______

A. buy the call.
B. sell the call.
C. wait as the option price is not quoted.
Correct Answer: A

The investor believes the call volatility is understated by the market. He is expecting the call to increase in value and thus should buy the call.

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