Question
Q5. Current underlying price at 100. Mean absolute deviation of 20. Q5a. What is the price of an ATM PUT and ATM CALL? What is
Q5. Current underlying price at 100. Mean absolute deviation of 20. Q5a. What is the price of an ATM PUT and ATM CALL? What is the delta value of 2 long CALLs? Q5b. If you long 2 ATM CALLs, what position do you take in underlying shares to have a zero-delta position (Note long 2 CALL short underling to go delta zero is same as a straddle)? Q5c. What is the gamma value of your the ATM CALL position, hedged with underlying shares from Q5b? (Note when you double the # of option contracts, you double delta and gamma as well) Q5d. Based on the delta and gamma values above, What is the delta of the above call + underlying hedge position when underlying moves to $120? What is your position PnL? Q5e. Based on the delta and gamma values above, what is the delta of the above hedged call position when underlying moves to $80? What is your position PnL? Q5f. Price the CALL option with X=100 when underlying is at 100, at 120, and at 80. What is the PnL for 1 long X=100 CALL when underlying moved from 100 to 80? what is the PnL for 1 CALL when underlying moved from 100 to 120?
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