Interview Question: Volatility Position

Sample Question #259 (finance – options)
 
When you’re buying a put option, are you long or short volatility?
 
(Comment: this is a very basic concept)
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4 Responses to Interview Question: Volatility Position

  1. Brett says:

    ANSWER
     
    Whether you buy a call or put, you’re long volatility. Intuitively, when you buy an option, you hope the underlying will go into the money, and higher volatility makes that event more likely.
     

  2. Lin says:

    this doesn’t sound right to me. ??longing a put, you will expect the underlying price go down. volatility goes up, put value goes down. so it’s shorting the volatility.

  3. Brett says:

    RRL, does a put’s value actually go down when volatility goes up?  One way to look at is to remember that an option’s vega is always positive, and is the same for a call and put with the same characteristics.
    -brett

  4. Yanis Ps. says:

    Not too many words needed. Volatility is your friend when you are long in either a call or put. ( you want your underlying to move, move and move- that’s what you are betting on.) Q.E.D. -Yanis

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