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why is it said that options are rendered more valuable by higher volatility? thanks
 2 years ago
 2 years ago
why is it said that options are rendered more valuable by higher volatility? thanks
 2 years ago
 2 years ago

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brain_filthBest ResponseYou've already chosen the best response.0
More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going inthemoney, which adds value to the option.
 2 years ago

brain_filthBest ResponseYou've already chosen the best response.0
More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going inthemoney, which adds value to the option.
 2 years ago

business1Best ResponseYou've already chosen the best response.0
would this logic than imply that higher volatility would lower asset value since higher beta would result from higher volatility, pushing up wacc? thanks
 2 years ago

Dt515627Best ResponseYou've already chosen the best response.0
That depends on what you think of BETA in regards to how well it estimates actual risk. I think that higher volatility can cause an asset to be riskier, but I don't think that means the asset in question would have a lower intrinsic value just because it is volatile.
 2 years ago
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