单选题

If the volatility of returns of an underlying security increases, then:

A、 both call and put option prices increase.
B、 both call and put option prices decrease.
C、 call prices increase and put prices decrease.

【正确答案】 A

【答案解析】

A is correct because higher volatility increases the possible upside value of the underlying which increases the price of calls and does not hurt puts. Higher volatility also increases the possible downside value of the underlying which increases the price of puts and does not hurt calls.