Estimate the up-factor, used in the binomial option pricing

Reference no: EM133633388

For all questions, assume you are a customer, not a dealer and assume all option contracts are for one share. Signs matter. Negative numbers, e.g., premium paid, should be shown as such.

Questions:

1.Calculate the net premium for a short straddle, expiry Dec 08, stuck at $245.

2.Calculate the net premium for a long straddle, expiry Dec 08, stuck at $245.

3.Calculate the net premium for a bull call spread using the $240 and $255 strikes , expiry Dec 8.

4.Based only on the information provided in the option chain, what is the approximate probability of the Dec 1, $255 strike put being exercised?

5.Assume you own TSLA stock at a price of $242, what is the max profit of a covered call strategy using the Dec 8 call stuck at $255?

6.Based only on the information provided in the option chain, and a closing price of $242, what is the implied move, i.e., +/- range in dollars, of TLSA stock over the upcoming year, based on the Dec 1, $245 puts?

7.Based on a normal distribution, what is the probability that TSLA stock remains with +/- one standard deviation of its current price during the next year?

8.Assume you own TSLA stock at a price of $242, what is the max loss of a protected put strategy using the Dec 1 call stuck at $235?

9.How much did you receive if you sold the most actively traded option in the Dec 1 series on November 15, 2023?

10.Assume you did not own TSLA stock and you sold the Dec 8 $250 call. What is you max profit?

11.Assume you own TSLA stock at a price of $230 and you sold the Dec 8 $250 call. What is you max loss?

12.Three month call options, struck at $15.50, on AT&T (T) are trading at $1.42. Assuming the stock is trading at $14 and interest rates are 5%, what is the price of the put with the same strike and expiry? Hint: Use put-call parity.

13.Six month put options, struck at $16.00, on AT&T (T) are trading at $2.35. Assuming the stock is trading at $14 and interest rates are 5%, what is the price of the call with the same strike and expiry? Hint: Use put-call parity.

14.Assume the VIX is trading at 14 and the S&P 500 is at 4,500. What is the implied move on the S&P 500 (+/-) index points, over the next 31 days. Round your answer to the nearest full point.

15.Using a one-step binomial model, calculate the risk neutral probability of an up move , given a risk-free rate of 5%, and up factor of 1.15 and a down factor of 0.85, for an option expiring in six months.

16.Using the information from the previous question calculate the value of a six moth call struck at $80, assuming the stock is currently trading at $75.

17.Using the information from the previous question, calculate the price of the put (same expiry and strike) using put-call parity.

18.Based on put call parity, write the equation for synthetic long call. For example, a synthetic long stock would be written as: S0= C+Xe(-r*t)-p

19.Based on put call parity, write the equation for synthetic long put. For example, a synthetic long stock would be written as: S0= C+Xe(-r*t)-p

20.Estimate the up-factor, used in the binomial option pricing model, for a six month option assuming annual volatility is 35%

21.Assume JPM is currently trading at $145. A three month call option, stuck at $140, is available for $7.25. What is the intrinsic value of this call option?

22.Assume WMT is currently trading at $155. A three month put option, stuck at $135, is available for $3.75. What is the intrinsic value of this put option?

23.Assume NFLX is currently trading at $465. A nine month call option, stuck at $460, is available for $9.65. What is the time value of this call option?

24.Assume prices on the S&P 500 are normally distributed with a mean of 4,000 index points and an standard deviation of 600 index points. What is the probability that the S&P 500 fall below 3,200 over next year?

25.Assume the probability of the stock market rising in any given year can be modelled as a binomial distribution, and is 65%. What is the probability that the stock market rises 12 or more times during the next twenty years?

Reference no: EM133633388

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