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current stock price of Johnson & Johnson (J&J) is $178, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%.
current stock price of Johnson & Johnson (J&J) is $178, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of J&J's stock is 30%. You want to purchase a put option on this stock with an exercise price of $171 and an expiration date 60 days from now. Assume 365 days in a year. With this information, you calculate the probability that a random draw from a standard normal distribution will be less that d1, aka N(d1), as 0.68145 and the N(d2) as 0.63687. Using Black-Scholes, the put option should be worth today.
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