Question
A trader at a bank takes a call from a customer interested in buying a $50.00 straddle. The current stock price is $49.00, the interest
A trader at a bank takes a call from a customer interested in buying a $50.00 straddle. The current stock price is $49.00, the interest rate is 6%, the implied volatility is 40%, and there are 90 days in a 365 day year until expiry. The customer shows the bank trader a $6.50 bid for the structure. Relative to fair value, how cheap/expensive is the customer's bid?
Please enter the number rounded to two decimal places, where $1.234 would be 1.23
Express the amount below fair value as a negative number, the amount above fair value as a positive number.
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