Bluetick1010

pmond wrote:
if so we are assuming volatility corresponds with a drop in price.
Could someone explain to me why we assume volatility only goes up when prices drop and not the other way around?
These two statements are not equivalent. We aren’t assuming that volatility only goes up when price drops. Increased volatility can result in a greater probability of both larger positive and negative price swings. Investors will pay more for the put because it will allow them to profit from the larger price decreases but not suffer a loss from larger price increases.
EDIT: I misread the original post, so the above is in reference to a general put option, but the reasoning is the same.