Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 07, 2024

Underlying trading at $100, and $20 annualized implied volatility. You think IV is too low and decide to buy a 90-110 strangle with 3 months

Underlying trading at $100, and $20 annualized implied volatility. You think IV is too low and decide to buy a 90-110 strangle with 3 months to expiration (DTE=63).

(Hint: a strangle is a combination of OTM PUT and OTM CALL.)

Assume interest rate of zero and normal distribution of prices.

Q1a. You think $20 annual vol is too low. You believe a fair annual vol should be $40. What is the statistically fair value of the strangle at $40 vol?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

Step: 3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions

Question

Examine psychotherapy approaches that are designed for children and adolescents.

Answered: 1 week ago

Question

★★★★★

Johns Cream Soda, Inc., makes specialty soft drinks. At the end of 2012, Johns had total assets of $390,000 and liabilities totaling $260,000. Requirements 1. Write the companys accounting equation,...

Answered: 1 week ago

Question

★★★★★

i need help solving part A please! On August 1, Sunland, Inc. exchanged productive assets with Coronado, Inc. Sunland's asset is referred to below as "Asset A," and Coronado' is referred to as "Asset...

Answered: 1 week ago

Question

★★★★★

can you rephrase this Throughout my placements, I felt supported by the organization's leadership structure, which provided guidance and mentorship as I navigated challenges. The inclusive...

Answered: 1 week ago

Question

★★★★★

Question two Ever since he was a small boy Nephew has dreamed of owning a car repair business. Following high school, Nephew borrows money from Bankco and enrolls and pays his own way through...

Answered: 1 week ago

Question

★★★★★

To deal with the continuous disappointing news in the job market, government increased spending. The short-run effect of the policy is ________ a.economic expansion and lower interest rate. b.no...

Answered: 1 week ago

Question

★★★★★

This house is new and how to set up the network in this house? CLOSET BATH 3 CLOS MASTER BATH SITTING 8'6"X7'0" BALCONY 10'4"x5'8" MASTER WARDROBE MASTER SUITE 18'0"x14'0" UTILITY LIFT DEN...

Answered: 1 week ago

Question

★★★★★

A U.S. parent has a subsidiary in Canada. Its account balances are measured in Canadian dollars. If the parent's reporting currency is the U.S. dollar and the subsidiary's functional currency is the...

Answered: 1 week ago

Question

★★★★★

Rome Restaurant has the opportunity to purchase a new pizza oven for their new line of pizzas. This oven has a cost of $60,000 and will yield the following cash flows: Year 1: $12,000 Year 2: $12,500...

Answered: 1 week ago

Previous Question Next Question