Assignment 1
Data-Driven Finance II
Rice University

Instructions

This assignment is due at midnight on Thursday, Jan 18. Submit a Jupyter notebook to Canvas. Copy each question into a Markdown cell and perform the analysis in the following cell(s).

A stock is trading at $147, and options are trading at the following prices. Assume the options all have the same maturity and bid = ask = price.

Strike Call Put
120 31.55 1.96
125 27.10 2.76
130 24.40 3.57
135 18.10 4.75
140 14.93 6.25
145 11.60 8.25
150 8.89 10.42
155 6.50 13.25
160 4.70 16.60
165 3.25 20.25
  1. Suppose you own the stock and want to collar it. Propose a costless (or, rather, near costless) collar. Plot the value of your collared stock, net of any income/expense for the collar, as a function of the stock price at the options maturity.
  2. Suppose you don’t own the stock but want to make a bet on it. Propose a bull spread. Plot your profit or loss on the spread as a function of the stock price if you hold it to maturity. The profit or loss should be as a percent of the cost of the spread.
  3. Assume you want to bet against the stock and repeat #2 for a bear spread.
  4. Repeat #2 for a straddle. What are you betting on with a straddle?
  5. Repeat #2 for a butterfly spread. What are you betting on with a butterfly spread?
  6. Consider the 140 call and put. What is the “PV of strike” that is consistent with put-call parity?