You Find the Option Prices for Three June Call Options

question 79

Multiple Choice

You find the option prices for three June call options on the same stock.The 95 call has an implied volatility of 25%,the 100 call has an implied volatility of 25% and the 105 call has an implied volatility of 30%.If you believe this represents a mis-pricing situation you may wish to ____________________________.

• A) buy the 105 call and write the 100 call
• B) buy the 105 call and write the 95 call
• C) buy either the 95 or the 100 call write the 105 call
• D) write the 105 call and write either the 95 or the 100 call

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Definitions:

Adjusting Entries

Bookkeeping entries recorded at the conclusion of an accounting cycle to apportion earnings and outlays to the appropriate period.

Interim Periods

Monthly or quarterly accounting time periods.

Annually

Occurring once every year.

Income Summary Account

An account used in the closing process to summarize the period's revenues and expenses before transferring the net income or loss to retained earnings.