You've decided that index put options are attractive to sell. For simplicity, assume the current S&P500...
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You've decided that index put options are attractive to sell. For simplicity, assume the current S&P500 index level is 100 and the risk-free rate is 1%. You sell one S&P500 index European put option with a strike of 96 and a one-month maturity. The implied volatility of the option is 23% and the price is $1.048 (i.e., you receive this amount in cash from the option sale). You believe that the annual expected return of the S&P500 index will be 6% with a volatility of 18%. What is your expected return from your sale? You've decided that index put options are attractive to sell. For simplicity, assume the current S&P500 index level is 100 and the risk-free rate is 1%. You sell one S&P500 index European put option with a strike of 96 and a one-month maturity. The implied volatility of the option is 23% and the price is $1.048 (i.e., you receive this amount in cash from the option sale). You believe that the annual expected return of the S&P500 index will be 6% with a volatility of 18%. What is your expected return from your sale?
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SOLUTION When selling a put option the seller receives a premium in this case 1048 in exchange for agreeing to buy the underlying asset in this case t... View the full answer
Related Book For
Matching Supply with Demand An Introduction to Operations Management
ISBN: 978-0073525204
3rd edition
Authors: Gerard Cachon, Christian Terwiesch
Posted Date:
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