Question

1. “Volatility smile” is a graph that plots implied volatility against time to expiration. (True / False)

2.Which of the Greeks is greater than zero?

a. Delta of a call option

b. Elasticity of a put option

c. Gamma of the underlying stock

c. Vega of the underlying stock

3. Trading shares of the underlying stock will affect the delta of a portfolio. (True / False)

4. in a “volatility smile”, options have the same time to expiration and the same implied volatility. (True / False)

Answer 1

1. “Volatility smile” is a graph that plots implied volatility against time to expiration.

FALSE.

Volatility smile is a graph that plots implied volatility against different strike prices, not time to expiration.

2.Which of the Greeks is greater than zero?

The Delta of a call option is greater than zero. Option a is correct

3. Trading shares of the underlying stock will affect the delta of a portfolio.

TRUE.

Buying shares will add delta to portfolio, while selling shares decreases delta of the portfolio.

4. in a “volatility smile”, options have the same time to expiration and the same implied volatility.

FALSE

In a "volatility smile", options have the same time to expiration but different implied volatility across different strike prices.