CFAI - Derivatives - Midway Q4

[Snah]

I’m struggling to understand this question, in my opinion; because the used volatility is higher than the real one; the options are overvalued and therefore should decrease in value (btw, I get very confuse with “decrease / increase in value”). could someone explain me why I am wrong?
the anwser ” Pacific will want to purchase call options and put options because both will increase in value should implied volatility rise to match the level of historical volatility.” is not too much clarifying…
Thanks
S

 

[Flashback]

Expected volatilty is > implied volatility by BSM.
Whenever volatitity is expected to rise, both put and call options prices will increase.

 

[Claudz6]

the recomended strategy was to buy put options and sell call options to profit from the increased expected vol - however both puts and calls increase in value as vols rise (as Flashback said above), so you’ll need to be long in both to gain.