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Option Pricing Model

Please list your answer to each question, by question number.  I grade on quality not quantity.  If you use outside sources, you MUST properly reference them.  If you are not familiar with standardized referencing, please go to www.citationmachine.net for assistance.  My preference in style is APA.  Please pay attention to your grammar, format and spelling – points will be deducted for errors in these areas besides errors in content.

 

 

Your assignment is to value two (2) call options, using two (2) different option-pricing calculators, and/ or pricing programs.  Therefore, your answer will include 4 valuations (2 for each expiration).  Some places to look for option pricing models are Google, Yahoo! Finance,

 

Using a basic Black Scholes model from two different resources does NOT fulfill the requirements of this assignment – two DIFFERENT pricing models are required. Please think outside of the box.  You must properly reference the sites or sources where you found your pricing models.

 

 

 

The two calls you are to value are:

1.    The August 2014 $50 Whole Foods call option ($50 is the strike price)

2.    The Jan 2015 $50 Whole Foods call option ($50 is the strike price)

 

Use a standard deviation of 20 and a risk free rate of 2%.

 

 

 

  1. Copy and paste your quantitative results into a word document and explain your results.  If there is a difference between the results that your two models arrive at, please discuss why you think this happened.  You MUST provide a properly referenced citation for where you obtained your model in the form of a footnote to your answer to this question.

 

  1. Compare the Aug 2014 call Greeks and the Jan 2015 call Greeks and explain why there are differences for EACH Greek (include Delta, Gamma, Theta, Vega & Rho).  No credit will be given if you just provide the definitions of the Greeks & I would prefer if you omitted basic definitions and references to the puts; you must apply the definitions to the situation and be specific. 

 

  1. Go to Yahoo! Finance and look up the actual market prices (premiums) for these two calls (please indicate the date and time of the quotes in your answer).  Explain why you believe the calculated price may not be the same as the actual market price.

 

  1. Based upon your research, take a position in Whole Foods– either bullish or bearish and explain how you would act on your opinion in the market, using what you have learned in this class – what would you buy or sell and why; what might your potential profit and loss be (specific numbers are required); why is your choice the best choice for capitalizing on your opinion.  You can use actual share transactions and/or naked or covered derivatives of any month or strike; you are not limited to the calls that you are analyzing in this assignment.  The assumption is that you have no existing positions in Whole Foods stock or Whole Foods derivatives.   Doing nothing is not an acceptable answer.

 

Please keep in mind that this is more of a critical thinking exercise than a quantitative exercise.  I will assess your answer to #1 & # 4 (the calculations) in a quantitative manor, but the rest of your assignment will be assessed on how well you present and explain your results.  If you use any outside sources, you MUST reference them properly – see www.citationmachine.net for referencing assistance. 

 



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