Question
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
What is the breakeven size of underlying movement, ie at what price of underlying in 1 day that your net PnL is zero?
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Computational Finance And Its Applications
Authors: C. A. Brebbia, M. Costantino
1st Edition
1853127094, 978-1853127090
