Question: Consider two European call options on the same underlying stock. Both options have the same maturity T = 6 months. The only difference between these

Consider two European call options on the same underlying stock. Both options have the same maturity T

= 6

months. The only difference between these options is their exercise price. The first one has an exercise price X

1 = 50

$ whereas the second has an exercise price X

2 = 150

.

The value of the underlying stock today is

48

.

You calculate the implied volatility of the first option. Then the implied volatility of the second option. Which of the two implied volatilities is a more reliable estimate of the actual volatility? Explain you answer in words

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