Which of the following will produce the highest put price, all else constant? Assume that the options are all in-the-money.
A) $45 stock price; 50% standard deviation.
B) $45 stock price; 75% standard deviation.
C) $50 stock price; 50% standard deviation.
D) $50 stock price; 75% standard deviation.
E) Not enough information.

Question

Quizplus · Accepted Answer

A higher standard deviation (volatility) increases the value of both call and put options because it implies a greater chance of the option ending in the money. Among the given options, a $45 stock price with a 75% standard deviation (Option B) will produce the highest put price, as the lower stock price increases the value of the put, and the higher volatility further increases its price.

Which of the Following Will Produce the Highest Put Price