Reference no: EM132075190
Critical Thinking Assignment
Choose one of the following two assignments to complete this week. Do not do both assignments. Identify your assignment choice in the title of your submission.
Option #1: Option Strategies and Implementation
Please respond to the following questions while elaborating on your insight and providing external support.
You are managing a separate portfolio dedicated to your retirement income. You do not wish to take excessive risk, and would prefer to limit the downside.
What common option structure would suffice and how would you implement this structure to protect the portfolio's value?
A bullish call spread is bullish on direction. Is it also bullish on volatility?
What is the volatility view implied by a long horizontal call spread? What about a short horizontal put spread?
Complete your 3- to 4-page response using Microsoft Word.
APA Requirements,
with at least two external sources properly cited.
Option #2: Put-Call Parity
Please respond to the following questions while elaborating on your insight and providing external support.
1. Explain why a European call on a stock that pays no dividends is never exercised early. What would you do instead to eliminate the call option position?
2. A stock is trading at S = $60. There are one-month American calls and puts on the stock with a strike of $60. The call costs $2.50 while the put costs $1.90. No dividends are expected on the stock during the options' lives. If the one-month rate of interest (annualized) is 3%, show that there is an arbitrage opportunity available and explain how to take advantage of it.
Is there a manner to set-up a model to assess and identify arbitrage opportunities such as this one?
Complete your 3- to 4- page response using Microsoft Word.
Use APA formatting with at least two external sources properly cited.
APA Format
Times New roman 12 font
References can be on the same page as the body of the paper. I will reformat
3 - 4 pages not including references
Please pick one of the two below questions and let me know which one you chose.