Can someone help explain the answer to Q48 on Implied Volatility in the CFA Level II Mock Exam PM?
Thaaanks!
Bump! can someone help explain this? Edbert would you mind?
ok, first, what is the impact of higher/lower volatility on an option price?
now, that we established that which options are more expensive or cheap, we can then conclude that some strategies utilizing options are more expensive than others.
have fun!
side note: implied volatility is the level of volatility one gets from their option pricing model. usually we insert volatility to find price, but this time we insert market price to get the “implied” volatility.
ok I see what you mean
but why are we assuming that “hedging” is put and “long position” is call? It could be the other way around. The text does not specify.
you already own the stock, you’re trying to minimize downside risk, how? buy a put!
now, using pcp(put call parity) what is a synthetic long position on the stock? long call short put!
thank’s Edbert you’ve been very helpful!
since you have a good grasp of this topic, would you mind explaining Q44 on the replication of the option payoff please?