I’m learning the market price for FRM, and I’m having a hard time understand a question in the assessment:
From my understanding, the volatility skew for equity is the graph on the right upper corner:
So with strike price going up, the implied volatility goes down, and the equity option price goes down due to less need for “protection”.
But my question is: the explanation says “a heavy left tail puts more mass or probability on the up side or higher side of stock prices.” Why is this? Doesn’t a heavy left tail— like the graph in the first picture, show a higher probability for lower strike and lower stock price? So why is B wrong?