Note: Data and assumptions are in the green boxes. Enter your calculations in the blue boxes. Question #3 Options Data for Big Pharm, Inc., July 6th Calls Puts Aug. Oct. July Aug. Strike/Exercise Price July Oct. 155 160 165 170 10.50 6.00 2.70 0.80 11.80 8.10 5.20 3.20 14.00 11.10 8.10 6.00 0.20 0.75 2.35 5.80 1.25 2.75 4.70 7.50 2.75 4.50 6.70 9.00 Days to Expiration 11 Time to Expiration (T) 0.0301 Risk-Free Rate (r) 5.16% 46 0.1260 5.50% 102 0.2795 5.88% 11 0.0384 5.16% 46 0.1342 5.50% 102 0.2110 5.88% Current Stock Price - 165.13 Oct. 25 26 Time Value for American Options 27 C. (S., T, X)+X/(1+r) SA +P.S., T, X) 28 Strike/Exercise Price July Aug Oct. July Aug. 155 30 160 31 165 32 170 33 34 35 36 Which combination of call and put has the largest mispricing? 37 What strategy would you use to take arbitrage this situation? 38 39 Differences July Aug 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Oct 0.00 0.00 0.00 0.00 40 41 42 144 45 Note: Data and assumptions are in the green boxes. Enter your calculations in the blue boxes. Question #3 Options Data for Big Pharm, Inc., July 6th Calls Puts Aug. Oct. July Aug. Strike/Exercise Price July Oct. 155 160 165 170 10.50 6.00 2.70 0.80 11.80 8.10 5.20 3.20 14.00 11.10 8.10 6.00 0.20 0.75 2.35 5.80 1.25 2.75 4.70 7.50 2.75 4.50 6.70 9.00 Days to Expiration 11 Time to Expiration (T) 0.0301 Risk-Free Rate (r) 5.16% 46 0.1260 5.50% 102 0.2795 5.88% 11 0.0384 5.16% 46 0.1342 5.50% 102 0.2110 5.88% Current Stock Price - 165.13 Oct. 25 26 Time Value for American Options 27 C. (S., T, X)+X/(1+r) SA +P.S., T, X) 28 Strike/Exercise Price July Aug Oct. July Aug. 155 30 160 31 165 32 170 33 34 35 36 Which combination of call and put has the largest mispricing? 37 What strategy would you use to take arbitrage this situation? 38 39 Differences July Aug 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Oct 0.00 0.00 0.00 0.00 40 41 42 144 45