Question
rf = 0 and underlying at 100. Annual stdev of $30. 28 days left for the option before expiration. Q2. You want to construct a
rf = 0 and underlying at 100.
Annual stdev of $30. 28 days left for the option before expiration.
Q2. You want to construct a delta-neutral CALL front ratio spread. Long 1x 45 delta CALL, and short 3x 15 delta CALL.
Q2a. What are the strikes for the CALLs you will be using that give you 15 and 45 deltas (2 points)?
Q2b. What is the gamma value of the CALL front ratio spread created? Positive or negative (2 points)?
Q2c. What is the one day theta value for the front ratio spread? Is it positive or negative? (2 points)
Q2d. If underlying goes up by $1 in one day, what is the gamma Pnl as well as total PnL for the call front ratio spread? (2 points)?
Q2f. If underlying goes UP by $5 in one day, what is the gamma Pnl as well as total PnL for the call front ratio spread? (2 points)?
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