i wasted 15 minutes of my life on this Q following, minutes, current, likely, price

dvilayphet

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.

19831985

of course the call the with strike price of 90.

zhaoyp

It's C. If there is no arbitrage, vega for the same strike must be equivalent. So, C has zero vega.

brainsX

answer is C

ninja1024

ohai Wrote:
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> 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?

onelife1

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.

ayodayo

they might be relatively similar but it won't cancel out to exactly 0?

Analyze_This

the long and short position cancel to exactly 0 vega

giorgio10

Chuckrox8 Wrote:
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> 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