Question

Option traders sometimes refer to deep-out-of-the-money options as being options on volatility. Why do you think they do this?

   Option traders sometimes refer to deep-out-of-the-money options as being options on volatility. Why do you think they do this?

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 20, Problem 12

Instant Answer

Step 1

These options have a very low probability of ending up in-the-money and therefore have a low intrinsic value. However, deep-out-of-the-money options can still have value due to their potential for large price swings in response to changes in the underlying Show more…

Show all steps

lock

Thanks for your feedback!

Option traders sometimes refer to deep-out-of-the-money options as being options on volatility. Why do you think they do this?

Play audio

Feedback

Powered by NumerAI

Ace is your personal tutor. It breaks down any question with clear steps so you can learn.

Start Using Ace

Continue solving this problem

Create a free account to:

View full step-by-step solution
Ask follow-up questions with Ace AI
Save progress and study later