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Options: Level 2-3 Challenges


How is historical trading-day volatility measured?

Step 1:
A) Calculate the absolute change in closing prices as the data set.
B) Calculate the percentage change in closing prices as the data set.

Step 2:
C) Calculate the standard deviation of the data set.
D) Calculate the variance of the data set.

Step 3:
E) Multiply it by 252 \sqrt{ 252} .
F) Multiply it by 365 \sqrt{365} .

Image credit: Google Finance

When would you want to early exercise an American call?

The stock is trading at $20. The European call on the $10 strike expiring in 1 months is actively trading at $9. What trade do you want to execute?

The stock is currently trading at $30. What is the maximum price of the Put on the $20 strike, expiring in 1 year?

When would you early exercise an American put option on a stock that doesn't pay dividends?


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