Which of the following is true about options?
A)Generally, higher volatility of the underlying increases the value of the option.
B)The value of an option is realized only through its being exercised.
C)An American option is exercisable at its maturity date.
D)An option premium is refundable if the option becomes unfavorable.

Question

Which of the following is true about options?
A)​Generally, higher volatility of the underlying increases the value of the option.
B)​The value of an option is realized only through its being exercised.
C)​An American option is exercisable at its maturity date.
D)​An option premium is refundable if the option becomes unfavorable.

Quizplus · Accepted Answer

Generally, higher volatility of the underlying asset increases the uncertainty and potential for the option to end up in the money, thereby increasing the option's value.

B) is false as options can also be traded before expiration, allowing for the realization of value without exercise.

C) is false as American options can be exercised anytime before or on the maturity date.

D) is false as option premiums are non-refundable, even if the option becomes unfavorable.

Which of the Following Is True About Options