Effect of Implied Volatility on Options

This question tests a candidate’s understanding of one of the core drivers of option pricing, implied volatility, and how it affects both calls and puts. In an interview, you are expected to explain the intuition behind option value, including why greater expected price movement increases the chance that either option ends up in the money. It also helps interviewers see whether you can connect market uncertainty to option prices and discuss how traders interpret volatility in practice, which is a key concept in sales and trading.