Series 7 - General Securities Representative Exam

Preview Mode

It is currently February and a trader is bullish on a stock 3 to 6 months out. When analyzing the stock's option chain, he notices high implied volatility in the June options, but lower in July and August. He wants to buy calls. What might you suggest to this trader?

Buy the June calls; they are more likely to go up
A
Buy the July or August calls; they are less expensive
B
When implied volatility is high, it is a good time to buy options
C
When implied volatility is high, making money in options is easier
D

Explanations

When IV is high, options are more expensive. Since he is bullish 3 to 6 months out. he can avoid paying too much for the premium by buying the July or August calls. High IV means that options are more expensive, which can benefit a seller of options; but not the buyer

Pricing