Option Pricing Model Assignment :
Your assignment is to value two (2) call options, using two (2) different standardized calculators, and/ or pricing programs. So, your answer will include 4 valuations (2 for each expiration). Some places to look for option pricing models are 888Options, Yahoo! Finance and GOOGLE. If you are on campus, CBC 252 has a variety of financial software programs that include some other pricing tools. Using a basic Black Scholes model from two different resources does NOT fulfill the requirements of this assignment – two DIFFERENT pricing models are required. 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 2012 $80 Whole Foods call option ($80 is the strike price)
2. The January 2013 $80 Whole Foods call option ($80 is the strike price)
Use a standard deviation of 25 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.
2. Compare the August 2012 call Greeks and the January 2013 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; you must apply the definitions to the situation and be specific.
3. 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.
4. Based upon your research, take a position on 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 would your potential profit and loss be (specific numbers); why is your choice the best choice for capitalizing on your opinion. You can use actual share transactions and/or naked or covered 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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