If the volatility of the underlying asset decreases, then the:
A) Value of the put option will increase, but the value of the call option will decrease
B) Value of the put option will decrease, but the value of the call option will increase
C) Value of both the put and call option will increase
D) Value of both the put and call option will decrease

Question

Quizplus · Accepted Answer

Volatility is a key factor in option pricing; higher volatility increases the potential for larger price swings, which increases the value of both call and put options. Conversely, a decrease in volatility reduces the potential for price swings, thus decreasing the value of both call and put options.

If the Volatility of the Underlying Asset Decreases, Then The