Question

"For 1-year SPX options, we observe that the 25-delta put implied volatility is at 45%, the 50-delta call implied volatility is at 30%, the 25-delta call implied volatility is at 35%. These observations suggest that the option-implied SPX 1-year return risk-neutral distribution is (a) normally distributed, (b) positively skewed, (c) thin tailed, (d) negatively skewed"

Answer #1

"Consider the following 4 options on AAPL: (a) 1-year 25-delta
call, (b) 1-year 25-delta put, (c) 2-year 50-delta call, (d) 2-year
60-delta put. Which of the 4 options has its strike price closest
to the strike of a 1-year 75-delta call option on AAPL?"

"Consider the following 4 options on AAPL: (a) 1-year
25-delta call, (b) 1-year 25-delta put, (c) 2-year 50-delta call,
(d) 2-year 60-delta put. Which of the 4 options has the lowest
strike?"
"Consider the following 4 options on AAPL: (a) 1-year
25-delta call, (b) 1-year 25-delta put, (c) 2-year 50-delta call,
(d) 2-year 60-delta put. Which of the 4 options has the highest
strike?"
"Consider the following 4 options on AAPL: (a) 1-year
25-delta call, (b) 1-year 25-delta put, (c)...

1. “Volatility smile” is a graph that plots implied volatility
against time to expiration. (True / False)
2.Which of the Greeks is greater than zero?
a. Delta of a call option
b. Elasticity of a put option
c. Gamma of the underlying stock
c. Vega of the underlying stock
3. Trading shares of the underlying stock will affect the delta
of a portfolio. (True / False)
4. in a “volatility smile”, options have the same time to
expiration and the...

"Consider the following 4 options on AAPL: (a) 1-year 25-delta
call, (b) 1-year 25-delta put, (c) 2-year 50-delta call, (d) 2-year
60-delta put. Which of the 4 options goes down the most in value if
AAPL stock price goes up?"

"Which one of the following 4 long option combinations leads to
a delta-neutral position: (a) 1-year 25-delta call + 1-year
75-delta call, (b) 1-year 25-delta call + 2-year 25-delta put, (c)
2-year 75-delta call + 2-year 25-delta put, (d) 1-year 25-delta
call + 1-year 75-delta put"

"Which one of the following 4 long option combinations leads to
a delta-neutral position: (a) 1-year 25-delta call + 1-year
75-delta call, (b) 1-year 25-delta call + 2-year 25-delta put, (c)
2-year 75-delta call + 2-year 25-delta put, (d) 1-year 25-delta
call + 1-year 75-delta put"

1.An options implied volatility is a measure of the variation in
the option price.
2.Two portfolios A and B with the same 10-day Value-at-Risk at
95% confidence level have the same maximum loss.
Ture or False

1:Consider a European call option on a stock with current price
$100 and volatility 25%. The stock pays a $1 dividend in 1 month.
Assume that the strike price is $100 and the time to expiration is
3 months. The risk free rate is 5%. Calculate the price of the the
call option.
2: Consider a European call option with strike price 100, time
to expiration of 3 months. Assume the risk free rate is 5%
compounded continuously. If the...

1. 1. You try to price the options on XYZ Corp. The current
stock price of XYZ is $100/share. The risk-free rate is 5%. You
project the stock price of XYZ will either be $90 or $120 in a
year. Assume you can borrow or lend money at the risk-free rate.
Use risk-neutral approach to price the 1-year call option on XYZ
Corp with the strike price of $105. (Attention: using a wrong
approach will cost you all the credits)...

A trader has the following portfolio, where options contracts
are for one share. 1. Long 1-year put with strike $80 2. Long
1-year call with strike $120
Assume that the price of the underlying asset is $100.
Volatility is 20%, rate=1%, dividend yield 0%. a. Calculate the
value of the portfolio. b. What will be the value if the stock
drops 25% in 1 month? c. What will be the value if the stock drops
25% and the volatility goes...

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