I just joined a HF as an investment analyst (equities) and doesn't work on the trading side. My boss gave this order to our broker for an options trade and asked me to think about several follow up questions over the weekend (supposedly to broaden my skill-set beyond research). I haven't taken an options class and would really appreciate your help. The order he gave was:
XYZ 29Apr10 6.5 AC 6.26 Ref. Delta=25%, Price= 0.07/, Vol= 14.25%/
Suppose XYZ above is the ticker.
His questions were:
- What does the above order mean?
- Calculate the put-call parity
- Determine the price of call when stock is $6.30
- Verify that 0.07 is actually 14.25% volatility
- calculate price of option if it is based on 15% volatility
He then asked me to think about a different situation: we are working on a merger arb trade in Asia which has a "market out" condition (i.e. if, say, the Hang Seng index drops by 20% from the 21,000 level for 3 consecutive days, the acquirer can terminate the transaction without costs). He then asks me to think about how to hedge against this risk. I told him that we need to buy a put on the index. Note that this index is traded over the counter and not on an exchange. he then asked me to calculate how much to hedge, at what strike price I would hedge it at.
I would really appreciate your help...it will save my weekend :)
I could answer the questions, but it would be much better if you read about this stuff instead and actually learned it. There are no short cuts.
On that same logic, no one should ask any technical questions or indeed any questions on this forum at all as they are supposed to read up on the stuff on their own. There are no "shortcuts". How lame.
I think that you should first attempt to find out answers to technical questions by yourself at first. And if you got a rundown of answers to these questions with a brief explanation you might learn the answers to these questions, but if you read for example Introduction to Options Trading by Frans de Weet (very very quick read), which is a great intro, you can develop a foundation in the theory that is much more beneficial.
But since you are such a lazy shit then here are some useful links:
http://www.theoptionsguide.com/understanding-put-call-parity.aspx http://www.investopedia.com/articles/optioninvestor/02/031102.asp http://en.wikipedia.org/wiki/Greeks_(finance) http://en.wikipedia.org/wiki/Black–Scholes
As was said above, this is for your own good. If someone tells you the answer, then you will look like an idiot the next time your boss gives you an ACTUAL order and you fuck it up.
wow
hahha "it will save my weekend". it might save your weekend but not save you any embarrassment!
XYZ 29Apr10 6.5 AC 6.26 Ref. Delta=25%, Price= 0.07/, Vol= 14.25%/ option name, expiry date, strike price, AC 6.26 Ref. - no idea, delta is first order derivative of option price=f(asset price), price is price of option, volatility is implied volatility used for computing the option price.
put call parity for a european call and putt option with the same strike price is: put price + asset price = call price + strike price discounted
for the rest of the option questions just google the BlackSholes option pricing model or find a calculator and run it with inputs you're given
6.26 Ref is where the underlying was trading when the option was priced....ie these are 6.50 calls and the underlying currently trades at 6.26.
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