Answered step by step
Verified Expert Solution
Question
1 Approved Answer
-25 (a) (3 points) Snap Inc (SNAP) is currently trading at S = $64.50 and a trading firm holds the following position of European options:
-25 (a) (3 points) Snap Inc (SNAP) is currently trading at S = $64.50 and a trading firm holds the following position of European options: 37 Days to Expiration Calls Puts Strike Quantity Price Strike Quantity Price 50 -50 15.30 50 100 0.90 60 100 8.00 60 -200 3.50 75 2.30 75 50 12.60 65 Days to Expiration Calls Puts Strike Quantity Price Strike Quantity Price 55 125 12.30 55 -125 2.60 80 200 2.15 80 100 17.50 The interest rate for both expirations is 0.2%. What is the net delta, gamma and vega of the position? (Round delta, gamma and vega to 2 decimal places) (b) (2 points) The firm wishes to eliminate the position gamma and vega using a European put with 65 days to expiration on the same underlying, K = $70, since they feel it's priced too rich at $10.40. What is the delta, gamma and vega of that put? (round to 2 decimal places) (c) Consider the following possible two hedges: (a) Want to gamma and delta hedge the position: (a) (2 points) Rounding to nearest whole option contract, how many puts does the firm trade to make position gamma neutral? Are they long or short puts? (b) (2 points) Each option is for 100 shares. How many shares does the firm buy or sell to make position both delta and gamma neutral? (a) Want to vega and delta hedge the position: (a) (2 points) Rounding to nearest whole option contract, how many puts does the firm trade to make position vega neutral? Are they long or short puts? (b) (2 points) Each option is for 100 shares. How many shares does the firm buy or sell to make position both delta and vega neutral? -25 (a) (3 points) Snap Inc (SNAP) is currently trading at S = $64.50 and a trading firm holds the following position of European options: 37 Days to Expiration Calls Puts Strike Quantity Price Strike Quantity Price 50 -50 15.30 50 100 0.90 60 100 8.00 60 -200 3.50 75 2.30 75 50 12.60 65 Days to Expiration Calls Puts Strike Quantity Price Strike Quantity Price 55 125 12.30 55 -125 2.60 80 200 2.15 80 100 17.50 The interest rate for both expirations is 0.2%. What is the net delta, gamma and vega of the position? (Round delta, gamma and vega to 2 decimal places) (b) (2 points) The firm wishes to eliminate the position gamma and vega using a European put with 65 days to expiration on the same underlying, K = $70, since they feel it's priced too rich at $10.40. What is the delta, gamma and vega of that put? (round to 2 decimal places) (c) Consider the following possible two hedges: (a) Want to gamma and delta hedge the position: (a) (2 points) Rounding to nearest whole option contract, how many puts does the firm trade to make position gamma neutral? Are they long or short puts? (b) (2 points) Each option is for 100 shares. How many shares does the firm buy or sell to make position both delta and gamma neutral? (a) Want to vega and delta hedge the position: (a) (2 points) Rounding to nearest whole option contract, how many puts does the firm trade to make position vega neutral? Are they long or short puts? (b) (2 points) Each option is for 100 shares. How many shares does the firm buy or sell to make position both delta and vega neutral
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started