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The correct valuation as of this date for the next available
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Chris Martin

Answers to IM Extra Credit Questions

Question 1:

The correct valuation as of this date for the next available in the money call is $.16022. The next

available in the money put is .40482. However, the current market price of the $12.50 April 20th

expiration call trading on the CBOE as of 4/12/13 is a bid of 9 cents and an ask of 10 cents.

Therefore we see a discount to value of about 7 cents on the bid side, which equals a discount of

nearly 40% of implied value.

Question 2:

If there is a discount on the call and a premium, it shows a higher demand for downward

protection, however, BAC is a market bellwether, thus held institutionally, thus this could be

more hedge protection against possible increase against possible stock price decrease opposed to

actual expectation of price decrease. However, given inflated values of current market

conditions, we would feel comfortable placing a hedge to protect any core position.

 

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The correct valuation as of this date for the next available
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  • Submitted On 15 Jul, 2018 04:59:13
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Question 1: The correct valuation as of this date for the next available in the money call is $.16022. The ...
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