Goldman Sachs believes that market volatility will be 20% annually for the next 3 years. Three-year at-the-money

Question:

Goldman Sachs believes that market volatility will be 20% annually for the next 3 years. Three-year at-the-money call and put options on the market index sell at an implied volatility of 22%. What options can Goldman establish to speculate on its volatility belief without taking a bullish or bearish position on the market? Using Goldman’s estimate of volatility, 3-year at-the- money options have N (d1) = .6.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...