What does the Volatility Cone help traders evaluate? Option: The optimal time to exercise an option, The likelihood of a market crash, The future direction of stock prices, The costliness of an option

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What does the Volatility Cone help traders evaluate?

The optimal time to exercise an option

The likelihood of a market crash

The future direction of stock prices

The costliness of an option

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What insight does the Volatility Cone provide about implied volatility?

It calculates the expected return from an option strategy

It predicts the future direction of implied volatility

It compares current implied volatility to historical realized volatility

It identifies the optimal strike price for option trading

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What is the term for the graphical representation of how implied volatility for options of the same underlying asset and expiry date often differs in reality?

Delta Surface

Volatility Cone

Volatility Smile

Implied Volatility Curve

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What is the common misconception about volatility in financial markets?

Volatility is a measure of market sentiment

Volatility is the difference between the highest and lowest price of a stock in a given period

Volatility is the up-down movement of the stock market

Volatility is the rate of change of option premium

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Which type of volatility reflects the market participants' expectation of future volatility?

Forecasted Volatility

Implied Volatility

Historical Volatility

Realized Volatility

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How does the delta of an option behave when implied volatility is high?

The delta of out-of-the-money options goes to zero

The delta of in-the-money options decreases significantly

A larger range of options around ATM are sensitive to spot price changes

The delta becomes less sensitive to changes in the underlying price