- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 34. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility
CFA Practice Question
An investor believes that the stock price volatility of Amazon.com is about 33% implied volatility. A three-month at-the-money call on an Amazon.com option is being offered at 25% implied volatility. The investor should ______
B. sell the Amazon.com call.
C. wait as the option price is not quoted.
A. buy the Amazon.com call.
B. sell the Amazon.com call.
C. wait as the option price is not quoted.
Correct Answer: A
The investor believes the Amazon.com 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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