Q4. Delta and Gamma with Uniform Distribution (20 points) Current underlying price at 100, and...
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Q4. Delta and Gamma with Uniform Distribution (20 points) Current underlying price at 100, and you expect price at expiration follows uniform distribution with mean absolute deviation of 20. You short 10 PUTs with strike at 90.
Q4e. Calculate option price when stock moves $80. How much of the total PnL of Q4d is from option position, and how much is from the stock position?
Q4f. If underlying moves down from 100 to 80, what is the new delta at stock price of 80 for your overall position based on gamma? If you need to re-hedge to flatten delta with underlying shares, what trade do you need to do in the shares to flatten the delta?
Q4g. What is the PnL from the delta and gamma when underlying moves from 100 to 120, respectively?
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