Q1) Suppose a stock is currently trading at 500.

An at-the-money call with a maturity of three months has the following price a
C = 50
∆ = 0.62
Γ = 0.025
(a) If the stock price moves to S = 510 what is the predicted new option price (using the delta alone)?
(b) If the stock price moves to S = 510, what is the predicted new call delta?
(c) Repeat these questions assuming the stock price moves to 450 instead.
(d) If the stock price registers a large jump increase to 550, what is the new call value predicted by the delta alone? By the delt

CE 50 ∆ 0.62 Γ 0.025

∆ Change in New
S0 S1 Change in S Value Premium
a) 500 510 10 0.62 6.2 56.2

New
b) S0 S1 Change in S Γ Change in ∆ New ∆ Premium
500 510 10 0.025 0.25 0.87 58.7

∆ Change in New
d) S0 S1 Change in S Value Premium
500 550 50 0.62 31 81

New
S0 S1 Change in S Γ Change in ∆ New ∆ Max ∆ Premium
500 550 50 0.025 1.25 1.87 1 100

Change in option Price = ∆ * dS + (0.5*Γ *dS^ 2) 62.25

New Price 112.25 (New price = Old price + or - change in value)

Q2) CE = 10, Θ = -10.15. If the time to maturity reduces by 3%, what is the new call value predicted by the theta? What will be

CE 10 Θ -10.15 dT 3%

Change in value -0.3045

New Premium 9.6955

Q3) if CE = 12, V = 15.695. If the volatility increases by 2%, what is the predicted new value of the call? What will be

CE 12 V 15.695 SD 2%
Change in Value 0.3139
New Premium 12.3139
Q4) If CE = 4.57, ρ = 13.96. If interest rates should rise by 25 basis points, what is the new call value predicted by the rho? Wha

CE 4.57 ρ 13.96 r 0.25%

Increase in rates, increase in c
Change in Value 0.0349
New CE Premium 4.6049 If interest rates fall down by 100 basis points
ρ 13.96 r
If PE, 4.5351
Change in Value 0.1396
New Premium 4.4304
For PE 4.7096

A long position in 100,000 call options with strike price $55 and an expiration date in 3 months. The delta of each
A short position in 200,000 call options with strike price $56 and an expiration date in 5 months. The delta of each
A short position in 50,000 put options with strike price $56 and an expiration date in 2 months. The delta of each

Position Size Delta position delta

Long 55 Call 100000 0.533 53300
Short 56 Call -200000 0.468 -93600
Short 56 Put -50000 -0.508 25400
-14900

Portfolio 1
Option Current Stock Strike No. of Option Option
type Price Price Options Delta Gamma Vega Theta Rho
Long Call 100 118 30 0.2567 0.04 5.265 -3.20 9.73
Long Put 100 135 42 -0.0412 0.038 5.347 -2.80 -2.615
Short Put 100 120 -18 0.5656 0.057 8.234 -4.70 6.993
Position Values -4.2102 1.77 234.312 -129 56.196

Portfolio 2
Option Current Stock Strike No. of Option Option
type Price Price Positions Delta Gamma Vega Theta Rho
Long Call 100 118 30 0.2567 0.04 5.265 -3.20 9.73
Long Put 100 135 42 -0.0412 0.038 5.347 -2.80 -2.615
Short Put 100 120 -18 0.5656 0.057 8.234 -4.70 6.993
Long Stock 100 50 1 0 0 - 0
Position Values 45.7898 1.77 234.312 -129 56.196

How can I make this portfolio 2 delta neutral?

a) By selling 45.78 stock
 Option Current Stock Strike No. of Option Option
type Price Price Positions Delta Gamma Vega Theta Rho
Long Call 100 118 30 0.2567 0.04 5.265 -3.20 9.73
Long Put 100 135 42 -0.0412 0.038 5.347 -2.80 -2.615
Short Put 100 120 -18 0.5656 0.057 8.234 -4.70 6.993
Long Stock 100 50 1 0 0 - 0
Short stock 100 -46 1
Position Values 0

b) By going long put at 135

Number of long put required -1111.4029

Option Current Stock Strike No. of Option Option

type Price Price Positions Delta Gamma Vega Theta Rho
Long Call 100 118 30 0.2567 0.04 5.265 -3.20 9.73
Long Put 100 135 42 -0.0412 0.038 5.347 -2.80 -2.615
Short Put 100 120 -18 0.5656 0.057 8.234 -4.70 6.993
Long Stock 100 50 1 0 0 - 0
Long Put 100 135 1112 -0.0412 0.038 5.347 -2.80 -2.615
Position Values 0 44.026 6180.176 -3242.6 -2851.684

c) By short Calls at 118

Number of short calls required 178.378652

Option Current Stock Strike No. of Option Option

type Price Price Positions Delta Gamma Vega Theta Rho
Long Call 100 118 30 0.2567 0.04 5.265 -3.20 9.73
Long Put 100 135 42 -0.0412 0.038 5.347 -2.80 -2.615
Short Put 100 120 -18 0.5656 0.057 8.234 -4.70 6.993
Long Stock 100 50 1 0 0 - 0
Short Call 100 118 -178 0.2567 0.04 5.265 -3.20 9.73
Position Values 0 -5 -703 441 -1676
months has the following price and greeks:

d by the delta alone? By the delta and gamma combined

cted by the theta? What will be your answer if it was a put option?

alue of the call? What will be your answer if it was a put option?
alue predicted by the rho? What will be your answer if the interest rates had fallen down by 100 basis points? Will your answer change if i

Increase in rates, increase in call value, decrease in put value

own by 100 basis points

1.00%

in 3 months. The delta of each option is 0.533

e in 5 months. The delta of each option is 0.468
in 2 months. The delta of each option is _x0002_0:508.

Premium
45.7898 -45.7898 0
6
42
24
1512

Delta neutralposition = Sum of position delta = 0

Premium
Value
6 180
42 1764
24 -432
0 5000
6512
Premium
Value Long Put at 135 delta -0.0412
6 180 How many positions you need to create
42 1764 with above long put?
24 -432 -1111.403
0 5000
-4600
1912

Premium
Cost
6 180
42 1764
24 -432
0 5000
42 46704
53216

Premium
Cost
6 180
42 1764
24 -432
0 5000
6 -1068
5444
? Will your answer change if it was PE?