Question
The ETF SPY closed on April 23, 2021 at 416.74 and the price of the May 416 European call option on SPY was $6.27 per
The ETF SPY closed on April 23, 2021 at 416.74 and the price of the May 416 European call option on SPY was $6.27 per underlying share. Assume that the risk-free rate was 0% and the dividend yield was 1.5%.
Given that the option expires on May 19, 2021, compute the volatility implied by the price of the call option.
Estimate the price of a European put option with the same strike and maturity.
What SPY position should you hold to hedge a long position in this put option if written on 1000 shares of SPY (10 put option contracts each written on 100 shares of SPY)?
Step by Step Solution
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Step: 1
To compute the implied volatility of the European call option we can use the BlackScholes option pricing model The formula for the call option price i...
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Investments
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
9th Edition
73530700, 978-0073530703
