The value of both call and put options increases as the variability of the stock price decreases.

Question

Quizplus · Accepted Answer

The statement is incorrect. The value of call options increases as the variability of the stock price increases, while the value of put options decreases as the variability of the stock price increases. This is because a higher variability in the stock price increases the likelihood that an option will end up in-the-money, which increases the potential profit for the holder of a call option and decreases the potential profit for the holder of a put option.

The Value of Both Call and Put Options Increases as the Variability