Question
It is the 5th of November 2017. BP closed at $40,56. Near the money call options with maturity January were trading in CBOE with the
It is the 5th of November 2017. BP closed at $40,56. Near the money call options with maturity January were trading in CBOE with the strikes exhibited in table 1.Comment on the relationship between quoted put and call prices and moneyness. Given that the risk free rate is 1,18% and that volatility is 19,72%:
a) Calculate the price of a 40 strike call option (hint: use DIAS.LAB(..).
b) Calculate the delta of the call option. If the price rises to 41 what will be the value of the new delta? What implications does this have for hedging?
c) A bank has written 100,000 PB call options. What strategy should he use to hedge against small and large movemens in the price of the underlying asset. Use the call option with srike 42 with a gamma 0,159 and a delta 0,2731 and finde delta and gamma neutrality?
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