To create a delta-neutral portfolio, the SIT fund has sold 10,000 put options on Epsilon stock with a strike price of $80 when the shares were trading at $100. The risk manager from SIT uses the Black-Scholes model to value all its option exposures. The current price of the shares is $90. The annualized standard deviation of Epsilon stock returns is 20%and the option expires in six months. If the risk-free rate is 2%, approximately, what is the likelihood that this option will be exercised?
(a) 0.7975
(b) 0.5329
(c) 0.4241
(d) 0.2033

Answer rating: 100% (QA)

ANS WER There is a 50 chance that the option will be exerc... View the full answer