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dvilayphet

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tT
发表于 2011-7-11 20:02 | 只看该作者

i wasted 15 minutes of my life on this Q

following, minutes, current, likely, price
let's see if i am the only one.

consider a share ABC stock with current price of 50. Which of the following options on ABC stock will most likely have the lowest vega? A long:

A. Put with strike of 10
B. Call with strike of 90
C. Put with the strike of 50 and short call with strike of 50.

I am sure most of you will get it right.
I post answer after 5 responses.
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19831985

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2#
发表于 2011-7-11 20:02 | 只看该作者
of course the call the with strike price of 90.

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zhaoyp

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3#
发表于 2011-7-11 20:02 | 只看该作者
It's C. If there is no arbitrage, vega for the same strike must be equivalent. So, C has zero vega.

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brainsX

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4#
发表于 2011-7-11 20:02 | 只看该作者
answer is C

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ninja1024

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5#
发表于 2011-7-11 20:02 | 只看该作者
ohai Wrote:
-------------------------------------------------------
> It's C. If there is no arbitrage, vega for the
> same strike must be equivalent. So, C has zero
> vega.


How do you know there is no arbitrage based off of what is given in the question?

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onelife1

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6#
发表于 2011-7-11 20:02 | 只看该作者
C

Wouldn't the volatility inputs be relatively similar for a put and call that are $40 out of the money in each direction? By process of elimination I arrived at C although I couldn't really justify C as my answer.

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ayodayo

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7#
发表于 2011-7-11 20:02 | 只看该作者
they might be relatively similar but it won't cancel out to exactly 0?

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Analyze_This

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8#
发表于 2011-7-11 20:02 | 只看该作者
the long and short position cancel to exactly 0 vega

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giorgio10

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9#
发表于 2011-7-11 20:02 | 只看该作者
Chuckrox8 Wrote:
-------------------------------------------------------
> C
>
> Wouldn't the volatility inputs be relatively
> similar for a put and call that are $40 out of the
> money in each direction? By process of
> elimination I arrived at C although I couldn't
> really justify C as my answer.
your are right, A and B have equally low vega

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