Underlying trading at 100 and 20 annualized implied, Ask an Expert

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Underlying trading at $100, and $20 annualized implied volatility. You think IV is too low and decide to buy a 90-110 strangle with 3 months to expiration (DTE=63).

(Hint: a strangle is a combination of OTM PUT and OTM CALL.)

Assume interest rate of zero and normal distribution of prices.

You think $20 annual vol is too high. You believe a fair annual vol should be $10. What is the statistically fair value of the strangle at $10 vol?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92871892

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