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Consider the MSFT option prices below (prices at closing on April 29, 2022). Microsoft current stock price is $278 Assume no dividends Expiry of options
Consider the MSFT option prices below (prices at closing on April 29, 2022).
- Microsoft current stock price is $278
- Assume no dividends
- Expiry of options October 21, 2022 (assume 172 days to expiration)
Calls (EXPIRATION: 12/20/2020) PUTS (EXPIRATION 12/20/2020)
Strike | Price | Intrinsic value | Implied Variance |
| Strike | Price | Intrinsic Value | Implied Variance |
270 | $36.00 |
|
|
| 270 | $20.80 |
|
|
300 | $15.25 |
|
|
| 300 | $35.70 |
|
|
- Identify the above options as in-the-money and out-of-the-money.
- Why are the intrinsic values different from the market prices?
- What is the average implied variance of annual returns of MSFT shares in the above options?
- Use the annual risk-free rate from the YTM of the 10-year bond and the call prices above to find the prices of Put options using the Put-Call Parity model. How do these prices compare to the market prices of the Puts? Are there any arbitrage opportunities?
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