You are directionally neutral, but firmly believe that over the next three months, the S&P 500 will be less volatile and will remain in a tighter trading range than most other investors believe. To act on this view, you should:
Theta measures the amount by which an option's time value decays every day. All else equal, which option would have the largest theta?
A client who is bullish the S&P 500 index is debating between buying ATM calls and buying an ATM call spread (long ATM call, short OTM call) on a larger notional. The option premium is the same for the two strategies. Which of the following is true?
Equity options usually exhibit a 'skew' with Black-Scholes implied volatilities higher for low-strike options than for high-strike options. In the presence of a steep skew, is it possible for a 10% out-of-the-money put to trade for more than an otherwise-identical 5% out-of-the-money put?
Suppose you buy a three-month call option on 100 shares of Coca-Cola (KO) at a strike price of $55 (with spot equal to $53). One month later, spot is again $53, and interest rates are unchanged. Assume zero dividends or corporate actions. Which of the following is true?