Delta Neutral Strategy for Mispriced Items in AMAZON
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Question
- Identify a CALL or PUT option (in this case, we used AMAZON) that you believe is OVERPRICED. Explain and illustrate clearly why you think the instrument is mispriced.
- Develop an arbitrage, delta-neutral strategy that will make money from the mispriced derivative. Specifically, detail the minimum costs of undertaking this strategy and pursuing it. You can use as much money as you like. Given that the strategy is theoretically risk free, you should not lose any money anyway!
- Every week you are responsible for adjusting your delta-neutral portfolio. Make a record of all transactions and profit/loss of the strategy. You are required to show evidence of at least two adjustments. (e.g., can use recent 2 weeks)
Summary
This question belongs to management and discusses about identifying a call or putting option for overpriced instrument in AMAZON.
Word count: 1026
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