Briefly Explain How an Option Holder Gains from the Volatility

question 37

Essay

Briefly explain how an option holder gains from the volatility of the underlying stock price.

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Definitions:

Induced Hypocrisy

A psychological state induced when individuals are made aware of a discrepancy between their attitudes and behaviors, leading to discomfort and a potential change in behavior.

Cognitive Dissonance

The mental discomfort experienced when holding two or more contradictory beliefs, values, or attitudes, prompting individuals to seek consistency.

Self-Esteem Threat

A perceived challenge or attack on one's self-worth or self-image, leading to defensive reactions or anxiety.

Counterattitudinal

Relating to or involving actions or behaviors that are contrary to one's stated beliefs or attitudes, often used in the context of persuasion and attitude change research.