Use the CBOE options calculator for questions 1 through 6. (Assume interest rate

Question

Use the CBOE options calculator for questions 1 through 6. (Assume interest rates of 5% and no dividend.) For a $15 stock with a volatility of 27 percent . . . http://www.cboe.com/framed/IVolframed.aspx?content=https%3a%2f%2fcboe.ivolatility.com%2fcalc%2findex.j%3fcontract%3dD6B57F42-7E24-4F86-9F5A-A8775235FB12&sectionName=SEC_TRADING_TOOLS&title=CBOE%20-%20IVolatility%20Services

1. What is the theoretical price of a 60-day at-the-money call option?

2. If the option were trading as if the volatility was 40 percent, that price would be over valued (relative to the theoretical) by how much?

3. With the original parameters and assuming a same day movement, at what stock price would the $15 call double?

4. At what price would the 15 call and the 15 put be theoretically identical?

5. At how many days till expiration would a $20 call be worth exactly $.10?

6. The same option in #4 would be worth $.50 if the volatility of the stock was how much? (Use the "volatility" button to bring up the volatility calculator window.)

Explanation / Answer

1. What is the theoretical price of a 60-day at-the-money call option? 0.7153

2. If the option were trading as if the volatility was 40 percent, that price would be over valued (relative to the theoretical) by how much? =1.0281/0.07153-1=13.373%

3. With the original parameters and assuming a same day movement, at what stock price would the $15 call double? 16.07

4. At what price would the 15 call and the 15 put be theoretically identical? 15 or 14.877

5. At how many days till expiration would a $20 call be worth exactly $.10? 165

6. The same option in #4 would be worth $.50 if the volatility of the stock was how much? (Use the "volatility" button to bring up the volatility calculator window.) 74.72% or 20.79%

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