The value of a call option increases as the volatility of the underlying stock price increases.

Question

Quizplus · Accepted Answer

When the volatility of the underlying stock price increases, it means that the price of the stock is fluctuating more widely, which increases the likelihood that the stock will move above the strike price of the call option. This increases the probability of the call option being exercised, which in turn increases its value. Therefore, the value of a call option is positively correlated with the volatility of the underlying stock price.

The Value of a Call Option Increases as the Volatility