Discuss the below:
Q1: Summary of options purchased at beginning of 4th quarter with 3 months to expiration (european style options)
| position |
shares |
premium |
strike price |
| long calls |
63,000 |
$20.45 |
$110 |
| long puts |
63,000 |
$13.15 |
$110 |
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|
beginning |
end |
|
|
4th Quarter |
4th Quarter |
| underlying stock price |
$111 |
$109 |
Assumptions when buying options: expected fairly major movement in the stock price
Q1 Compare versus historical volatility of underlying stock (3RD QTR PRICES IN SHEET 2)
Q2 Does the historical data support the view of what the options were worth?
Q3 Do the prices of other call and put options trading at that time reflect the same level of volatility that was forecasted?
Q4 Use binomial pricing model and black-scholes to validate answers
Q5 Calculations in sheet 2 correct for volatility?
Additional information:
1 4th quarter option prices below
2 3rd Qtr volatility in sheet2
1 4th Quarter Option Prices
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CALLS |
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|
PUTS |
|
| Options/Strike |
Expiration |
Vol |
Last |
Expiration |
Vol |
Last |
| 100 |
|
|
$18.60 |
|
|
$6.36 |
| 105 |
|
|
$15.75 |
|
|
|
| 110 |
|
|
$20.45 |
|
|
|
| 115 |
|
|
$11.04 |
|
|
$13.61 |
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