Question

why is it said that options are rendered more valuable by higher volatility? thanks

Answer 1

More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.

Answer 2

More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.

Answer 3

would this logic than imply that higher volatility would lower asset value since higher beta would result from higher volatility, pushing up wacc? thanks

Answer 4

That depends on what you think of BETA in regards to how well it estimates actual risk. I think that higher volatility can cause an asset to be riskier, but I don't think that means the asset in question would have a lower intrinsic value just because it is volatile.