"Like the butterfly spread,the calendar spread is one in which the underlying instrument's ___________ is the major factor in its performance." The best word for the blank is which of the following?
A)volatility
B)expected rate of return
C)beta
D)correlation with the benchmark index
E)skewness

Question

Quizplus · Accepted Answer

The performance of a calendar spread is heavily influenced by the underlying instrument's volatility. This is because a calendar spread involves purchasing options with different expiration dates, and the options with longer expiration dates are more sensitive to changes in volatility. A higher volatility can increase the potential profitability of the spread.

"Like the Butterfly Spread,the Calendar Spread Is One in Which