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business1

  • 5 years ago

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

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  1. brain_filth
    • 5 years ago
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    More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.

  2. brain_filth
    • 5 years ago
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    More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.

  3. business1
    • 5 years ago
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    would this logic than imply that higher volatility would lower asset value since higher beta would result from higher volatility, pushing up wacc? thanks

  4. Dt515627
    • 5 years ago
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    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.

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