If a trader feels that neither a stock price nor its implied volatility will change, what...

If a trader feels that neither a stock price nor its implied volatility will change, what is the most appropriate option position she/he adopt?

Solutions

Expert Solution

Option provides trader the right but not the obligation to purchase or sell underlying assets. If a trader feels that stock price and its implied volatility would not change then he should sell (write) the option in order to create highest positive theta position. Theta is related in measuring the rate by which option would lose its time value as the expiration period of option nears.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Calculate the Implied Volatility of the following options on Stock XYX. Stock Price=$50; Risk Free Rate...

Calculate the Implied Volatility of the following options on Stock XYX. Stock Price=$50; Risk Free Rate =10%; Dividends =$0; Expiration Date=1 Year; Strike Price =$50; Option Price= $7

why you did not find a single implied volatility for each stock and why your implied...

why you did not find a single implied volatility for each stock and why your implied volatilities were arrayed as they are? MSFT Strike Option Price Implied-Volatility B-S Implied Volatility 175. 4.95 0.3279 0.132178 177.5 3.32 0.3157 0.124592 180. 2.04 0.3103 0.118525 182.5 1.13 0.3027 0.113638 185. 0.58 0.302 0.111275 Strike Option Price Implied-Volatility B-S Implied Volatility 175. 1.32 0.3477 0.105137 177.5 2.2 0.3413 0.100382 180. 3.41 0.332 0.0930169 182.5 5.05 0.3452 0.0846884 185. 7. 0.3477 0.0560192

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose...

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (-) in seconds per week. -0.14 -0.64 -0.86 -0.85 0.16 -0.34 0.23 0.35 -0.33 -0.17 -0.89 -0.73 -0.36 -0.13 -0.27 -0.72 -0.20 0.36 H0: μ = 0 H1: μ ≠ 0 Is it reasonable to conclude that the mean gain or loss in time for the watches is...

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose...

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (-) in seconds per week. -0.41 -0.70 -0.30 -0.11 0.34 -0.62 0.46 0.73 -0.30 -0.55 -0.56 -0.72 -0.14 -0.21 -0.23 -0.76 -0.67 0.22 H0: μ = 0 H1: μ ≠ 0 Is it reasonable to conclude that the mean gain or loss in time for the watches is...

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose...

The Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (-) in seconds per week. -0.27 -0.40 -0.16 -0.78 0.58 -0.45 0.58 0.40 -0.64 -0.82 -0.40 -0.73 -0.54 -0.17 -0.69 -0.28 -0.58 0.36 H0: μ = 0 H1: μ ≠ 0 Is it reasonable to conclude that the mean gain or loss in time for the watches is...

Suppose that the price of a non-dividend-paying stock is $32, its volatility is 30%, and the...

Suppose that the price of a non-dividend-paying stock is $32, its volatility is 30%, and the risk-free rate for all maturities is 5% per annum. Use DerivaGem to calculate the the cost of setting up the following positions: (a) a bull spread using European call options with strike prices of $25 and $30 and a maturity of 6 months (b) a bear spread using European put options with strike prcies of $25 and $30 and a maturity of 6 months...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (−) in seconds per week. −0.30 −0.27 −0.34 −0.25 +0.31 −0.20 +0.36 +0.24 −0.19 −0.40 −0.49 −0.55 −0.55 −0.67 −0.03 −0.23 −0.54 +0.08 State the null hypothesis and the alternate hypothesis. State the decision rule for 0.02 significance level. (Negative amounts should be indicated by a minus sign. Round...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (−) in seconds per week. Click here for the Excel Data File −0.43 −0.22 −0.42 −0.37 +0.27 −0.23 +0.32 +0.54 −0.19 −0.29 −0.34 −0.55 −0.44 −0.56 −0.05 −0.19 −0.24 +0.08 State the null hypothesis and the alternate hypothesis. State the decision rule for 0.01 significance level. (Negative amounts should...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (−) in seconds per week. Picture Click here for the Excel Data File −0.16 −0.15 −0.20 −0.17 +0.26 −0.19 +0.30 +0.43 −0.10 −0.31 −0.48 −0.44 −0.51 −0.67 −0.05 −0.24 −0.51 +0.05 A. State the null hypothesis and the alternate hypothesis. H0= (mean symbol) = H1= (mean symbol) = B....

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time...

Watch Corporation of Switzerland claims that its watches on average will neither gain nor lose time during a week. A sample of 18 watches provided the following gains (+) or losses (–) in seconds per week. Picture Click here for the Excel Data File –0.42 –0.17 –0.11 –0.28 +0.33 –0.25 +0.34 +0.25 –0.08 –0.32 –0.54 –0.44 –0.45 –0.64 –0.04 –0.26 –0.44 +0.09 a-1. Is it reasonable to conclude that the mean gain or loss in time for the watches is...

Subjects