Q3. Option Implied volatility at Different Strike, aka vol skew (10 points).

You observe the following price for VXX options:

VXX = 25.50. Expiration in 3 months.

Calls Put

Last Price	Change	% Change	Volume	Open Interest	Strike	Last Price	Change	% Change	Volume	Open Interest
6.50	0.00	0.00%	99	566	20.00	0.79	0.03	3.95%	1,945	8,926
5.45	-0.55	-9.17%	6	260	21.00	1.24	0.13	11.71%	7	5,762
5.05	-0.20	-3.81%	1	1,667	22.00	1.60	0.08	5.26%	200	8,097
4.80	-0.25	-4.95%	2	171	23.00	2.12	0.12	6.00%	153	5,343
4.25	-0.15	-3.41%	1	677	24.00	2.74	0.15	5.79%	6	6,939
3.60	-0.40	-10.00%	85	1,701	25.00	3.28	0.12	3.80%	62	13,850
3.28	-0.43	-11.59%	5	1,196	26.00	4.00	0.20	5.26%	7	3,256
2.96	-0.49	-14.20%	4	933	27.00	4.65	0.20	4.49%	66	7,170
2.64	-0.39	-12.87%	10	1,177	28.00	5.30	0.15	2.91%	22	7,448
2.48	-0.32	-11.43%	22	1,006	29.00	6.08	0.17	2.88%	18	1,515
2.25	-0.33	-12.79%	10	3,163	30.00	6.75	0.07	1.05%	20	3,024
2.26	-0.26	-10.32%	9	1,072	31.00	7.65	0.15	2.00%	30	569
2.05	-0.22	-9.69%	41	1,094	32.00	8.45	0.00	0.00%	200	1,984
1.93	-0.08	-3.98%	77	842	33.00	9.35	0.09	0.97%	4	620
1.62	-0.27	-14.29%	10	557	34.00	10.00	0.00	0.00%	46	4,558
1.52	-0.21	-12.14%	27	6,355	35.00	10.85	0.00	0.00%	186	2,602

underlying trading at 25.50 and expiration is 3 months away.

a. find dollar volatility for options with strike from 20 to 35, one implied volatility at each strike price. Note only use OTM options to calculate implied vol, ie for strikes at or below 25, use put. For strike at or above 26, use call only.

b. convert dollar volatility above into an ANNUALIZED percentage volatility.

c. graph annualized % vol against strike. x-axis is strike price. y-axis is IV.