The implied volatility pattern exhibited when a large jump or drop in price is expected due to some imminent announcement is analogous to the pattern where:
A. at-the-money options exhibit less implied volatility than away-from-the-money options.
B. deep in-the-money puts exhibit less implied volatility than deep in-the-money calls.
C. deep in-the-money calls exhibit less implied volatility than deep in-the-money puts.
D. at-the-money options exhibit greater implied volatility than away-from-the-money options.
Answer:D
Price jumps tend to generate an implied volatility "frown," where at-the-money options will tend to have greater implied volatility than away-from-the-money options. This pattern is in contrast to the "smile" or "smirk" exhibited by currency and equity options, respectively.