Solution-Determining the lower cost strategy

Determining the lower cost strategy

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Reference no: EM133070513

At-the-money European 5 month maturity call options on Telsa stock trade at $44.75. The current stock price is $295 and the continuous annual risk-free interest rate is 3.5%. You feel like the stock will either increase or decrease in the next 5 months. You don't want to buy an at-the-money call option and an at-the-money put option. You think this strategy is too expensive. How could you make the same bet on volatility at a lower cost, but with a strategy that would require the underlying to have a larger move in price for the option strategy to payoff. What is the option premium you would pay for this lower cost strategy given the following prices?

Strike Call Put
280 53.45 40.48
295 44.75 43.26
310 37.88 50.45

Reference no: EM133070513

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Determining the lower cost strategy

Reference no: EM133070513

Reference no: EM133070513

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