Question

Using either a Black Scholes or Binomial Tree option calculator on the internet, what is the...

Using either a Black Scholes or Binomial Tree option calculator on the internet, what is the value of a 6 month put on Tesla Stock if we use volatility of .50, no dividend, and a risk free rate of 1%? You can copy your output directly into the document here

Homework Answers

Answer #1
Current Stock Price of Tesla = S = 746.36
t = time until option expiration(years) = 6/12 = 0.50
Let X = Option Strike Price = 800 (in the money put option)
r = risk free rate(annual) = 1% = 1/100 = 0.01
s = standard deviation(annual) = 0.50
N = cumulative standard normal distribution
d1 = {ln (S/K) + (r +s^2/2)t}/s√t
= {ln (746.36/800) + (0.01 + 0.5^2/2)*0.5}/0.5*√0.5
= -0.0054
d2 = d1 - s√t
= -0.0054 - 0.5√0.5
= -0.3590
Using z tables,
N(d1) = 0.4978
N(d2) = 0.3598
C = Call Premium = =SN(d1) - N(d2)Ke^(-rt)
= 746.36*0.4978 - 0.3598*800e^(-0.01*0.5)
= 85.1336
N(-d1) = 0.5022
N(-d2) = 0.6402
P = Put Premium = =N(-d2)Ke^(-rt) - SN(-d1)
= 0.6402*800e^(-0.01*0.5) - 746.36*0.5022
= 134.7836

Hence, value of put option = $134.78

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