Expectation of the impact on the option prices of ford

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Reference no: EM131868411

F (Ford Motor Company) at-the-money call options for May expiry are trading at $.50/share. At-the-money put options trade at $.45/share. The stock trades at $13.50/share. You have a hunch that Saudi Arabia is about to announce some action on oil production, though you do not know if they are going to increase it or reduce it. You are certain that whatever it is it will impact the auto companies, though. This potential uncertainty should increase the volatility of the stock prices of the auto companies. What would be your expectation of the impact on the option prices of Ford? How might you be able to profit from this? (Hint: this is a volatility trade.)

Reference no: EM131868411

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