Which of the following could be a result of "crashophobia"?
A. High volatilities for in-the-money calls
B. High volatilities for in-the-money puts
C. High volatilities for at-the-money calls
D. Low volatilities for at-the-money puts
A
Crashophobia is the word used to describe a possible "phobia" that traders might have that the market will crash. It would lead to out-of-the-money put options with low strike prices having high values and therefore high implied volatilities. In-the-money call options have the same implied volatilities as the corresponding out-of-the-money put options. Hence they also have high implied volatilities and the correct answer is A.
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