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Question: Consider the following quote: Implied U.S. dollar/New Zealand dollar volatility fell to 10.1%/11.1% on Tuesday. Traders bought at-the-money options at the beginning of the week, ahead of the Federal Reserve interest-rate cut. They anticipated a rate cut which would increase short-term volatility. They wanted to be long gamma. Trades were typically for one-week maturities, in average notionals of USD1020 million. (Based on an article in Derivatives Week (now part of Global Capital)).
a. Explain why traders wanted to be long gamma when the volatility was expected to increase.
b. Show your argument using numerical values for Greeks and the data given in the reading.
c. How much money would the trader lose under these circumstances? Calculate approximately, using the data supplied in the reading. Assume that the position was originally for USD30 million.
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ldquoirsquom glad i caught you in your officerdquo she says. ldquoirsquove been thinking about the cost of issuing
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Both a call and a put currently are traded on stock XYZ;both have strike prices of $50 and maturities of six months. What will be the profit to an investor who buys the call for $4 in the following scenarios for the stock prices in six months ?..
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You are the Director of the Outpatient Department at a mid size hospital. You attend quarterly Board meetings where the major financial statements are presented
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