Term Paper-What position in the option creates a portfolio that is gamma neutral? Give size of position and state whether it is long or short
What, to the nearest cent, is the lower bound for the price of a two-year European call option on a stock when the stock price is $20, the strike price is $15, and the risk-free interest rate with continuous compounding is 5% and there are no dividends?
A three-month call with a strike price of $25 costs $2. A three-month put with a strike price of $20 and costs $3. A trader uses the options to create a strangle. For what two values of the stock price in three months does the trader breakeven with a profit of zero?
A portfolio of derivatives on a stock has a delta of 2400 and a gamma of –100. An option on the stock with a delta of 0.6 and a gamma of 0.04 can be traded.
1. What position in the option creates a portfolio that is gamma neutral? Give size of position and state whether it is long or short
2. After this position has been taken what position in the stock is then necessary for delta neutrality? Give size of position and state whether it is long or short
