You are considering entering one of the following positions, all on the same under- lying non-dividend-paying...
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You are considering entering one of the following positions, all on the same under- lying non-dividend-paying stock, and all with the same amount of time to expiry: (1) short an at-the-money straddle; (2) short a deep-in-the-money put; (3) short a deep-out-of-the-money call; (4) long a strangle; (5) long a bearish put spread consisting of a combination of an in-the-money put and an out-of-the-money put; (6) short an at-the-money call. (a) In the Black-Scholes model, which position would definitely have a positive delta? (No justification is needed: simply write down a number from 1 to 6, and do the same for the next five parts.) (b) Which would have the largest (most positive) gamma? (c) Which could have either a positive or negative gamma? (d) Which would have the largest (most positive) theta? (e) Which would perform best if implied volatility suddenly declined? You are considering entering one of the following positions, all on the same under- lying non-dividend-paying stock, and all with the same amount of time to expiry: (1) short an at-the-money straddle; (2) short a deep-in-the-money put; (3) short a deep-out-of-the-money call; (4) long a strangle; (5) long a bearish put spread consisting of a combination of an in-the-money put and an out-of-the-money put; (6) short an at-the-money call. (a) In the Black-Scholes model, which position would definitely have a positive delta? (No justification is needed: simply write down a number from 1 to 6, and do the same for the next five parts.) (b) Which would have the largest (most positive) gamma? (c) Which could have either a positive or negative gamma? (d) Which would have the largest (most positive) theta? (e) Which would perform best if implied volatility suddenly declined?
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a Position 6 short an atthemoney call would definitely have a positive delta in the B... View the full answer
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