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W14.1: Visit the CBOE at www.cboe.com/tradtool/optioncalculator.asp. This program provides access to index and equity option evaluation models, which enables you to test and understand the dynamic relationships between the value of an option and the factors that affect this value. Once you have input all the factors of the option evaluation model, the Option Calculator will provide a theoretical value for the call and put you are valuing, as well as other important values (delta, gamma, etc.) Click on the tab [Equity Options]. Suppose the current date is 3/10/01. Change to equity price 100, strike price 90, volatility (% per year) 20, annual interest rate 5, quarterly dividend amount 3, first dividend date 03/12/01, and expiration month/year Oct01. You'll see the theoretical price of the call and put change before your eyes. Change the expiration month/year to May01. What are the new call and put prices? Explain the changes in prices. W14.2: Again, visit the CBOE at www.cboe.com. Click on S&P 500 (SPX). How many calls and puts are traded on SPX? Assume that someone believes the S&P 500 index will rise over the next few weeks. Describe some option trades that would take advantage of this anticipated rise in prices. Which would be the most risky? Which would be the least risky? W14.3: From the same site as in Exercise W14.2, describe some option trades that would take advantage of a probable decline in the S&P 500 index over the next few weeks. Which would be the most risky? Which would be the least risky?
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