Chapter 02 · Section 2.1

Short SF Calls-2

Lara is short 2 PHLX SF March 53 calls. Suppose that the volatility of the dollar/Swiss Franc increased sharply.

What would this mean for Lara?

• a) Lara would be happy, because the value of her calls would have increased.
  No. A higher volatility means a higher premium. If Lara wanted to liquidate her short position she would have to buy at a higher price than she originally received -- and realize a loss not a profit.
  b) Lara would not be happy, because the value of her calls would not have increased.
  c) Lara would not care, because it would have no effect.

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