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    Options Pricing

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    summary of options purchased at beginning of 4th quarter with 3 months to expiration (european style options)

    position shares premium strike price
    long calls 63,000 $20.45 $110
    long puts 63,000 $13.15 $110

    beginning end
    4th Quarter 4th Quarter
    underlying stock price $111 $109

    assumptions when buying options:expected fairly major movement in the stock price

    need to compare versus historical volatility of underlying stock
    does the historical data support the view of what the options were worth?
    do the prices of other call and put options trading at that time reflect the same level of volatility that was forecasted?
    need to use binomial pricing model and black-scholes to validate answers

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    Solution Summary

    Answer to a question on option pricing using Black Scholes.