Suppose you own a call option on Apple stock with a strike price of $150. The option will expire one year from today. Suppose Apple will not pay dividends in the next year. The annual risk-free rate of interest is 3%. The current stock price of Apple is $170 per share. Suppose that the price at which the call option is selling in the market increases from $30.81 to $35 (holding everything else constant). What has happened to the implied volatility of Apple stock?
Group of answer choices
It has not changed.
It has increased.
It has decreased.
There is insufficient information provided to draw any conclusions.
If the price at which option was selling earlier before, and option is selling now, has changed . this is due to the volatility and expectations of shareholder on the positive side because everything has remain constant and even the time value of option has also decreased but it can only increase due to volatility as the value of share price has not increased also.
Increase in share price lead to increase in intrinsic value of call option while decrease in time to maturity decreases the value of call option.
Increase in implied volatility increases the value of both call option and put option and hence it can be assumed that nothing has changed only volatility has the power to make the options value higher
Correct answer is option ( B) it has increased
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