Options become more valuable as the variability of interest rates increases.

Question

Quizplus · Accepted Answer

This is because options provide the holder with the right, but not the obligation, to buy or sell an underlying asset at a certain price. When interest rates are more volatile, the uncertainty around future interest rates increases, which can affect the value of the underlying asset and thus the value of the option. Higher variability in interest rates can cause larger price movements in the market, providing more opportunities for the option holder to profit.

Options Become More Valuable as the Variability of Interest Rates